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A Study in the Metl^odology of tl^e 
Social Sciences 


Albion W. Small 

Author of "General Sociology' 

Chicago: The University of Chicago Press 

London: T, Fisher Unwin, I Adelpl^i Terrace 


CoPYEiQHT 1907 By 
The University of Chicago 

PublisLed October 1907 

Composed and Printed By 

The UniTersity of Chicago Press 

Chicago, Illinois, U. S. A. 


This book is a fragment which I hope will 
some time find its place in a more complete study 
of the relations between nineteenth-century 
social sciences and sociology. 

The larger investigation is in progress in my 
seminar, and results are already in sight which 
justify belief that the work will not be without 
value. ' 

On the purely methodological side, this investi- 
gation was stimulated, if not originally suggested, 
by experiences in connection with the St. Louis 
Congress of Arts and Science. 

In all departments of progressive knowledge, 
the second half of the nineteenth century was 
unique in its intensive development of scientific 
analysis. It is not probable that scholars will ever 
permanently appraise the importance of analysis 
below their present estimates, but it is certain that 
we are entering an era of relatively higher appre- 
ciation of synthesis. 

The most distinctive trait of present scholar- 
ship is its striving for correlation with all other 
scholarship. Segregated sciences are becoming 
discredited sciences. 


The sociologists are aware that steriHty must 
be the fate of every ceHbate social science. Cross- 
fertilization of the social sciences occurs in spite 
of the most obstinate programs of non-inter- 
course. Commerce of the social sciences with one 
another should be deliberate, and it should make 
the policy of isolation disreputable. 

An objective science of economics without an 
objective sociology is as impossible as grammar 
without language. The present essay attempts to 
enforce this axiom by using Adam Smith as a 
concrete illustration. 

On the purely human side, unintelligence or 
misintelligence about the part that falls respect- 
ively to economic and to sociological theory in 
the conduct of life is a moral misfortune. How- 
ever quixotic it might be to hope that either of 
these forms of theory might be popularized to 
any great extent in the near future, ambition to 
make economists and sociologists understand each 
other a little better is not altogether indefensible. 

Incidentally this book does what it can to off- 
set the harm, more costly to the misled than to the 
misrepresented, that ill-report has done to eco- 
nomics and economists. The economists who 
have been written down as procurers to men's 
most sordid lusts have been, as a rule, high- 
minded lovers of their kind. The most abused of 


them — Smith, Malthus, Ricardo, Mill — devoted 
themselves to economics partly because they were 
genuine philanthropists. They set themselves the 
task of blazing out the path that leads to material 
prosperity, and of warning as fully as possible 
against side-tracks that would end in a fool's 

If economic theory has at times tended to take 
on the character of a shopkeeper's catechism, and 
at other times to become a mere calculus of 
hypothetical conditions, the general fact is not 
changed, that intelligent conduct of life must 
always presuppose an adequate science of 

The economists and the sociologists are study- 
ing the real conditions of life from different 
angles of approach. They are already learning to 
make use of each other's methods and results. 
The investigation of which this book is a partial 
report is in the interest of a more conscious and 
systematic partnership. 

The study in which the book is an initial step 
starts out with the perception that nineteenth-cen- 
tury economic theory was at bottom an attempt 
to discover the principles of honorable prudence,/ 
not to codify a policy of predatory greed. Eco- 
nomic theory became socially sterile through 
paresis of its conviction that morality is more 


than prudence. When we shall have learned to 
reckon with the accredited results of economic 
analysis, in genuine correlation with equally repu- 
table results of psychological and sociological 
analysis, we shall have advanced a stadium of 
intelligence similar to that which was covered in 
assimilating the discovery that physical science is 
not atheism. If we can begin to interpret the 
progress of the social sciences since Adam Smith 
as, on the whole, an enlargement and enrichment 
of the entire area of moral philosophy, in which 
the preserve of economic theory was the most 
intensively cultivated field, we shall have done a 
service for the next generation. We have been 
seeing these things out of their relations. It is 
possible to furnish our successors with more 
accurate clues. 

A comment upon the table of contents will 
partially explain the task which the book under- 
takes as a portion of a larger task to be reported 
upon in later volumes. 

Titles III-VII, inclusive, must not be under- 
stood as promises of systematic treatment of the 
material actually within their scope. On the con- 
trary, they are merely formulas for classifying 
those materials in the parallel portions of The 
Wealth of Nations, in which the problems of 
economics and sociology are intertwined. The 


titles indicate in a general way the large problems 
of methodology which the corresponding por- 
tions of Smith's treatise implicitly, but not ex- 
plicitly, raise. The very fact that the discussion 
under those titles, on the basis of Smith's own 
analysis, contains hardly more than a hint of the 
whole range of problems which the titles now 
suggest, serves to carry the argument that eco- 
nomic technology, abstracted from the rest of 
social science, leaves yawning hiatuses in our 

A. W. S. 

June io, 1907 



I. Introduction i 

II. The Sources 25 

III. The Economics and Sociology of Labor 79 

IV. The Economics and Sociology of Capital 155 
V. Economic vs. Sociological Interpretation 

OF History 181 

VI. The Problems of Economic and of Sociologi- 
cal Science 189 

VII. The Relation of Economic Technology to 
Other Social Technologies, and to 

Sociology 209 

VIII. Conclusion 235 


If one were to come upon The Wealth of 
Nations for the first time, with a knowledge of 
the general sociological way of looking at society, 
but with no knowledge of economic literature, 
there would be not the slightest difficulty nor 
hesitation about classifying the book as an inquiry 
in a special field of sociology. 

Under those circumstances there would be no 
doubt that the author of the book had a fairly 
well-defined view, though not in detail the modern 
view, of the general relations of human society, 
and of the subordinate place occupied objectively, 
if not in conventional theory, by the economic 
section of activities to which the book was 

On its first page the reader would get hints of 
the outlook in the mind of the author, and it 
would not be hard to construct from those hints 
a perspective which would contrast very directly 
with certain points in the view that afterward 
stole into vogue among classical economists and 
working capitalists. 

Sombart ^ has made a very strong statement 

^ Moderne Kapitalismus, Vol. I, pp. 196, et passim. 


of the fact that the era of modern capitaHsm 
differs from earlier industrial epochs in something 
far deeper than mere methods of doing business. 
He points out that the dominant motive for doing 
business has changed. The controlling purpose 
of modern business is to increase the volume 
and enlarge the power of capital Capital for 
its own sake, and for the social power it confers, 
is the standard of modern economic life. 

On the other hand, capital has never been to 
any great degree an end in itself until the last 
three centuries, and particularly since the indus- 
trial revolution at the end of the eighteenth cen- 
tury. Previous to that time the idea of wealth, 
in the minds of rich and poor alike, was that it 
was worth having only to spend. Men wanted 
wealth because they wanted to consume it, not 
because they wanted to capitalise it. In other 
words, their whole philosophy of life, whether it 
was expressed in their economic actions or in 
abstract theory, was to the effect that the life was 
more than the things; that people and their needs 
were the end-end, while wealth was merely a 

Whatever the influence of Adam Smith's work 
may have been, one cannot study his philosophy 
as a whole, even in the fragment of it that has 
come down to us, without being: certain that his 


basic positions were clearly and positively the 
human rather than the capitalistic principles. The 
author of The Wealth of Nations did not assume 
that the service of capital was the goal of eco- 
nomic activity. On the contrary, he assumed that 
all economic activity was, as a matter of course, 
a means of putting people in possession of the 
means of life.^ 

Furthermore, to state the same fact in a little 
different way. Smith assumed that the whole value 
of economic activities was to be decided by their 
effects on consumption. That is, instead of put- 
ting the production of wealth in the forefront, 
as the most significant measure of economic pro- 
cesses, he evidently, at least in his fundamental 
theory, regarded the production of wealth as 
merely incidental to the consumption of wealth. 
His whole moral philosophy — or, as we should 
say today, his sociology — was the ultimate 
evaluator of all production and consumption; 
that is, the human process, as it was analyzed and 

'Thus, in the "Introduction" to Book IV of The Wealth 
of Nations, he says : "Political Economy, considered as a 
branch of the science of a statesman or legislator, proposes 
two distinct objects; first, to provide a plentiful revenue or 
subsistence for the people, or more properly to enable them to 
provide such a revenue or subsistence for themselves ; and 
secondly, to supply the state or commonwealth with a revenue 
sufficient for the public services. It proposes to enrich both 
the people and the sovereign. 


synthesized by moral philosophy, was judged 
to be the tribunal of last resort for verdict upon 
the economic process. 

This has most certainly not been the per- 
spective of nineteenth-century political economy 
as a whole, so far as England is concerned. To 
speak figuratively, then, the apostolic succession in 
social philosophy from Adam Smith is through 
the sociologists rather than the economists. The 
sociologists have kept alive the vital spark of 
Smith's moral philosophy. They have contended 
for a view of life in terms of persons rather than 
in terms of technology. That is, they have put 
persons in the center of their picture of life, and 
have assigned a subordinate place to the theory 
of those technical activities which deal with the 
material products of persons. The economists 
are the separatists and heresiarchs, in exagger- 
ating the importance of a technology till it has 
overbalanced, in social doctrine, the end to which 
it is normally tributary.^ 

If we did not know that Smith's economic phi- 
losophy was merely a division of his sociology, 
the beginning of his Wealth of Nations would 

' Throughout this essay I speak of the classical political 
economy as though it were still dominant in England and the 
United States. I leave to a later essay the modifications 
which are necessary in order to make the generalizations fit 
subsequent developments in economic theory. 


seem to be very abrupt. As a matter of fact, 
there is no abruptness, because the preliminaries 
which have to be understood as an introduction 
to the book have to be suppHed from what we 
know of his general philosophy.^ For our pur- 
poses it is unnecessary to ask how adequate 
Smith's view of human life was, according to the 
ideas of present sociology. It is enough that the 
moral order was the inclusive concept in his 
philosophy, while the economic process was the 
included and tributary concept. In so far as eco- 

* This initial proposition not only contains nothing new, but 
it repeats the invariable conclusion of all who have given at- 
tention to Smith's whole system of thought. As Hasbach has 
rather caustically hinted (Untersuchungen, p. 20), this pri- 
mary fact seems to have been duly observed by everyone but 
the economists ! It was pointed out distinctly enough by 
Dugald Stewart in 1793, and it has been recognized by nearly 
every writer on Smith who does not confine attention merely 
to his economic doctrines. For example, Oncken (Smith und 
Kant, Leipzig, 1877) remarks (p. 16) : "Es sind Glieder eines 
Systemes der praktischen oder Moral-Philosophie in ihrem 
Gesammtumfange,und man wird der Arbeit des Urhebers nicht 
gerecht, wenn ein died selbstandig herausgehoben wird, um es 
unabhangig fiir sich einer weiteren Ausbildung zu unterwerfen. 
Ethik, Politik und Oekonomik, so lautet die Trias, welche den 

Inhalt der Smith'schen Philosophic bildet Diese 

Dreitheilung ist dem schottischen Meister iibrigens nicht 
einmal original. Sie hat sich langsam aus dem Entwicke- 
lungsgange der praktischen Philosophic seit ihren Anfangen im 
Alterthum herausgebildet, und war im vorigen (i8ten) Jahr- 
hundert allgemein iiblich." Variations of the same conclusion 
might be cited in large numbers. 


nomic theory has obscured and beclouded this 
view, it is an aberration, rather than an orderly 
extension of social science. This is always the 
case when a theory of means overshadows the 
theory of the ends which the means should serve. 

The opening paragraph ot Smith's introduc- 
tion is strictly consistent with these claims, viz. : 

The annual labour of every nation is the fund which 
originally supplies it with all the necessaries and conven- 
iences of life which it annually consumes, and which con- 
sist always either in the immediate produce of that labour, 
or in what is purchased with that produce from other 

This passage invokes a picture of a nation con- 
suming the products of its annual labor. The 
inquiry is, in a word: How may the aggregate 
wealth available for consumption be made as 
great as possible? There is no reference to accu- 
mulation, to increase of capital. That comes later, 
in its proper place. The center of interest 
is the nation of consuming persons. How may 
they have the most of the things which they need 
to consume in order to be the most prosperous 
persons? We are in danger of being branded as 
enemies of our kind, if we bring to light the dis- 
tance economic theory and practice have drifted 
from this anchorage. Today the main question 
is: How may the social machinery for grinding 


out capital be made most efficient? The clause 
is not consciously added, "regardless of its effects 
upon men;" but the extent to which this clause 
actually vitiates the temper and program of theo- 
retical and applied economics really constitutes 
the central social problem of our epoch. 

This opening paragraph also supports the 
belief that frank repetition of some of Smith's 
confident presumptions would today place men 
well along in the way toward extreme socialism. 
No modern trade-union leader, at any rate, is 
more sure than Adam Smith was that labor is 
the original source of wealth. The difference is 
that Smith took it for granted, while the modern 
laborer has to fight against jealous denial of this 
most rudimentary economic truth. Today capi- 
tal is not always content even to share honors 
with labor. Capital often goes so far as to claim 
superior virtues in the productive process, and 
to imply priority of right to the output. This 
perversion has not merely crept into economic 
practice, but it is written large between the lines 
of much economic theory. We shall see that this 
is in a considerable degree a change that marks 
secession from the moral presumptions upon 
which Smith's economic theories were based. 

Assuming, then, the homely fact that a nation 
is a collection of persons needing consumable 


goods in order to proceed with the other things 
that are of subsequent and superior importance, 
and in view of the fact that the produce of the 
nation's labor is a dividend that has to be shared 
by all the population, Smith in effect asks the 
frankly technical question: How may the labor 
of the nation he so applied that the dividend will 
he as large as possible, and that the quotient for 
each sharer may thus amount to a sufficient supply 
of the fundamental material necessities? 

In this question there is no suggestion nor 
implication of the attitude of aloofness toward 
the larger questions of social or moral science 
which later became characteristic of economic 
theory and practice. There is no hint that the 
question can be answered independently of the 
preliminary analysis of the moral world ; nor that 
answering the question about the commissary 
department of life solves all the essential prob- 
lems of life. On the contrary, the question which 
The Wealth of Nations proposes is as frankly 
special and technological as though it had been: 
How may the sewage of Great Britain, that now 
goes to zvaste, he saved and made valuahle in fer- 
tilising agricidtural land? 

While the two questions are far from co- 
ordinate, Adam Smith's philosophy no more 
thought of making the question dealt with in The 


Wealth of Nations the central question of society, 
than it would have proposed to put the question 
of utilizing sewage in that position. On the con- 
trary, the dependence of thought in his system 
was implicitly this : Human beings have a moral 
or social destiny to work out. Nations are units of 
effort in accomplishing that destiny. The people 
who compose a nation have the task of find- 
ing out appropriate ends of life, of learning what 
are the conditions which must be satisfied in 
reaching those ends, and of realizing the ends by 
getting control of the necessary means. As the 
life-problem of individuals and nations presented 
itself to Adam Smith's mind, it was, as we shall 
later see more in detail, first, a problem of re- 
ligion ; second, a problem of ethics ; third, a prob- 
lem of civil justice; fourth, a problem of economic 

Without stopping to take issue with this classi- 
fication, it is enough for our purpose to insist 
upon the main fact that the classification, crude 
as it is, and prescribed indeed by the traditions of 
the chair of moral philosophy from which Smith 
taught it, puts the actual interests of life more 
nearly in their essential relations than they were 
afterward in economic theory until the sociolo- 
gists began to move for a restoration of the bal- 
ance. Adam Smith turned from study of social 


life in its largest relations to intensive study of 
one of the techniques by which the processes of 
life are sustained. If economic theory remains in 
the position of logical subordination which it 
occupied in Adam Smith's system, it is an indis- 
pensable portion of social philosophy. In so far 
as it occupies a different position, unless it can 
justify itself as a larger moral philosophy, it does 
just so much to confuse and disturb the theory 
and practice of life. 

We shall see, as we analyze the later econo- 
mists from the standpoint of this essay, that two 
things are true: first, the so-called classical 
economists of England gave an emphasis and a 
proportion to economic theory that wrenched it 
arbitrarily from the just position which it occu- 
pied in Adam Smith's philosophy; second, the 
German economists, during the greater part of 
the nineteenth century, followed traditions which 
in spirit, if not in form and detail, were much 
nearer to Adam Smith than to the later classical 
English economists. The latter succeeded in 
overcasting the whole social sky with their science, 
and made it '^dismal," by temporarily obscuring 
the more fundamental science in which the eco- 
nomic theory of Adam Smith had its setting. 

To repeat, the most significant movement in 
thought during the present generation is a return 


to a basis of moral philosophy, in perspective 
rather than in content like that upon which Adam 
Smith rested his economic reasonings. To detect 
the serious mistake, and to recover the essential 
value of nineteenth-century economics, it is neces- 
sary to make as clear as possible the contrast 
between the true perspective of economic theory 
as a portion of moral science, as it was recog- 
nized by Smith, and the fallacious aspect of eco- 
nomics, as both corner-stone and key-stone of 
moral science, in classical theory, culminating 
in John Stuart Mill. It should be added that, 
while Mill represents the extreme aberration of 
economic theory from its proper center in moral 
science, it would not be far from the facts to say 
that his chapter on the future of the laboring 
classes marks the beginning of the return to 
Adam Smith's basis.^ 

In order to locate more distinctly the point of 
departure from which Adam Smith started, it is 
well to make a careful note of what is involved 
in his own general outline of The Wealth of 

^ See J. S. Mill, Political Economy, Book IV, "Influence of 
the Progress of Society on Production and Distribution." These 
chapters, rather than the single one referred to, may be called 
the watershed between the abstract and the sociological tend- 
encies in British political economy. 

I shall elsewhere discuss the title of Cliffe Leslie to some 
of this credit. 


Nations. It demonstrates beyond a doubt that we 
described it in a way that he would have accepted, 
if the present meaning of the phrase had been 
explained to him, when we called it a purely 
technological inquiry which had its methodologi- 
cal place as a subordinate division in his whole 
social philosophy. 

Having observed that the proportion of prod- 
ucts to the number of persons among whom 
they must be divided tells the story of better or 
worse supply of necessaries and conveniences,^ 
Smith adds that in general this proportion must 
be regulated in every nation by two different cir- 
cumstances : 

First, by the skill, dexterity, and judgment 
with which its labor is applied ; 

Second, by the proportion between the num- 
ber of those who are employed in useful labor 
and those who are not so employed. 

This word "useful," or its synonym "produc- 
tive," is very innocent in the early stages of 
economic argument. Smith probably had little 
premonition of the Pandora's box of theoretic 
evils that it contained."^ We need not hesitate to 
"P. I. 

'' a. J. S. Mill, Political Economy, Book I, Chap. II, and 
especially Chap. Ill, Sec. i, on distinction between "produc- 
tive" and "non-productive" labor. Also Mill's essay on the 
same subject. 


accept it here just as he meant it. In a word, it 
is a very simple proposition that, other things 
being equal, that nation will have the most prod- 
ucts to consume which contains the largest pro- 
portion of people who make themselves "useful" 
in producing consumable products. He did not 
mean to imply that this was the only way of 
being "useful" in a larger sense. 

Smith further observes in this connection that 
the abundance or scantiness of material goods 
seems to depend more on the former condition 
than on the latter, and his reason for thinking 
so is contained in the contrast between the savage 
tribe, in which each individual is compelled by the 
rigors of life to employ himself directly or indi- 
rectly in food-getting, yet poverty is universal, 
and the civilized nation, in which many live in 
comparative idleness, while wealth is relatively 

The first hook of The Wealth of Nations is 
devoted to analysis of the above fact; viz., to 
search for the causes of this improvement in the 
productive powers of labor, "and the order, ac- 
cording to which its produce is naturally \^sic'\ 
distributed among the different ranks and con- 
ditions of men in the society." 

With something of Casca's jealousy, we might 
stop to inquire: What should be in this "natur- 


ally"? It is a word which, of course, takes us 
back to the Physiocrats, and it presently lends 
itself to all the illusions of liberty in the classical 
conceptions of free competition; but that will 
also come later. Whether Smith was right or not 
in his assumptions of the particular natural pro- 
cesses underneath the visible social processes, he 
was attempting in this first book to carry out an 
inquiry that was as purely technological, as dis- 
tinguished from moral, as an inquiry by bacteri- 
ologists into the differences, and the reasons for 
the differences, between the water of a mountain- 
stream and that of a millpond. 

Economic theory later became involved in 
moral assumptions, analogous with questions 
about the title to property in the stream or the 
millpond. We shall see, not only that those 
assumptions begged fundamental questions in 
sociology, but that theoretical and practical econo- 
mists of the classical school even tabooed the dis- 
cussion of those assumptions. The prohibition 
was almost as rigid as the exclusion of the sub- 
ject of slavery from debate in Congress for the 
last decade before the Civil War. Thus the classi- 
cal economics, in defiance of all logic, forgot its 
strictly technological character, and assumed the 
function of an arbiter of morals. This central 
fact in British economic history makes it neces- 


sary for everyone who is concerned with current 
moral questions to be thoroughly familiar with the 
disturbing influences which the classical economics 
exerted upon investigation of moral questions. 

At this point I merely repeat that economic 
theory, as represented by Adam Smith, was 
strictly amenable to the logical demands of moral 
theory in the large. Our present task is to make 
this initial fact perfectly plain by analyzing the 
technological character of Smith's work. With 
this analysis as a background it will be possible 
to make clear the unconscious slipping of classi- 
cal economic theory from the necessary moral 

In the second book Smith treats "of the nature 
of capital stock, of the manner in which it is 
gradually accumulated, and of the different quan- 
tities of labor which it puts into motion, accord- 
ing to the different ways in which it is employed."^ 

The reasons for considering this subject are, 
in Smith's own words, that ''the number of useful 
and productive laborers is everywhere in propor- 
tion to the quantity of capital stock which is 
employed in setting them to work, and to the 
particular way in which it is so employed." ^ 

Again, this inquiry, in the form proposed by 
Smith, is as strictly technological as the question 

«Pp. 2, 3. 'P. 2. 


whether a lock canal will in the end furnish the 
best and cheapest transportation through the Isth- 
mus of Panama. No one would today be unable 
to see that the latter question belongs in a class 
entirely apart, and with an entirely different rank 
in the moral scale, from the question whether the 
United States government had dealt justly with 
the former sovereigns of Panama, or the ques- 
tions that will arise later about justice in the rules 
to be made for use of the canal by foreign 
nations. We should never think of confusing 
these engineering questions, or of supposing that 
the men who plan the construction of the canal 
are the authorities who should be allowed to dic- 
tate the international law code which should gov- 
ern the use of the canal. Yet something very like 
these impossible alternatives has been the implicit 
claim of classical economics. So far as the soci- 
ologists are related to the economists at all, it is 
not in questioning their competence to take care 
of their own problems, any more than the inter- 
national lawyers would claim competence to solve 
the proper problems of the engineers. The con- 
tention of the sociologists with reference to the 
economists is that the function of the latter is 
more nearly analogous with that of the engineer 
than with that of the legislator, while the sociolo- 
gist has a brief for the other interests, over and 


above the technological, which the legislator is 
bound to consider. 

We may call attention, in passing, to the squint 
toward the Malthusian problem, and the "wage- 
fund theory," which our knowledge of later de- 
velopments enables us to detect in the formulation 
of the last chapter of Book II. 

Book III at tempts to explain historically the 
different plans which nations have adopted in 
applying labor power, and the reasons why the 
different policies have had different degrees of 
success in securing a relatively large output, and 
particularly the reasons why European policy 
since the fall of the Roman Empire has inclined in 
favor of the urban rather than the rural types of 
industry. This again is a strictly analytical in- 
quiry. It is logically analogous with an investi- 
gation of the policy of the United States since 
the adoption of the Constitution with reference to 
public lands ; or a comparison of our public policy 
toward rivers and harbors, with our treatment 
of railways, and the actual effects of the same. 
All this, in either case, would furnish important 
data for problems of morals. In so far as effects 
upon persons, rather than upon things, could be 
traced in either case, the respective policies would 
come into the moral realm. 

The friction between economic and moral 


theory has always been generated in part by the 
assumption that the poHcy which was judged to 
be profitable economically must for that reason 
alone be accepted as justified morally. Whenever 
this assumption has had effect in any degree, the 
tendency has been to obscure the boundary lines 
between economics as a technology, and moral 
philosophy, or sociology, as discoverer of a stand- 
ard of life to which economic technology must be 

In Book IV Smith attempts to explain the 
different economic theories which have been con- 
sciously or unconsciously behind the different 
policies discussed in Book III. 

This purely historical inquiry, of a different 
sort from that pursued in Book III, may be com- 
pared with a history of political, or philosophic, 
or religious creeds. The facts in either case all 
have a certain ultimate value in showing what the 
political, or philosophic, or religious creed of 
living men should be. Primarily, however, they 
are mere exhibits of the actual workings of men's 
minds in the past. They show the conceptions 
by which they were influenced. They have no 
moral value for us whatsoever, except as we 
have some moral criterion by which to judge 
whether, or in what sense and degree, either of 
these previous creeds correctly interpreted the 
essential meanings of life. 


In other words, there is no more moral quality 
or force in a mere exhibit of what men in the past 
have believed about economics, than there is in 
their beliefs about ornaments, or weather signs, 
or geography. The history either of economic 
processes or of economic theories furnishes some 
of the material for a theory of morals. It does 
this because both economic theories and economic 
processes perforce deal more or less with persons, 
as well as with wealth. In so far as economic 
theories or processes have to do with persons, they 
are to that extent positive or negative judgments 
of those values which are lodged in persons; in 
other words, of moral values. So long as we are 
considering such past judgments merely as facts, 
accounting for economic action, the inquiry is as 
strictly technological as a chemical inquiry into 
the effects of alcohol, for instance, upon various 
physiological conditions. It is a question beyond 
the competence of physiologist or chemist, as 
such, what on the whole should be the policy of 
nations or of individuals with reference to the 
manufacture and use of alcohol. So far as Adam 
Smith planned his inquiry into the history of eco- 
nomic theory, he was apparently free from the 
confusion which sprang up later about the bear- 
ings of the inquiry. 

In the fifth and last hook of The Wealth of 
Nations Smith treats of the revenues of the state, 


as distinguished from the wealth created by the 
labor of the people of the nation and held by them 
as individuals. This again is a subject which, 
on the one hand, is purely a matter of fact as to 
the operation of a certain part of civic machinery. 
On the other hand, it borders first on another 
department of technology, viz., civic adminis- 
tration, and, second, on a whole realm of moral 
questions. The thought of the nineteenth cen- 
tury has been kept seething by varieties of 
opinions about the bearing which purely techni- 
cal and material aspects of the situation should 
have upon decisions of major and minor moral 
questions as to the functions of government, and 
the choice between this and that scheme of 
administration, in discharging the functions. 

In his announcement of this fifth book Smith 
shows very plainly his moral sympathies. For 
the first time he distinctly proposes to discuss the 
"ought" of the case. He thereby has recourse to 
his larger moral philosophy. Our present dis- 
cussion is in no sense a challenge of the propriety 
of this last phase of Smith's argument. On the 
contrary, in his main scheme of method he is to 
be held up as a model of the scientific order of 
procedure in arriving at judgments of morals. 
He is at the same time a striking contrast with 
some of his successors. He first derived his con- 


ception of life in the large. Then he analyzed 
one of the great divisions of activity within the 
whole scheme of life. On this basis he attempted 
to decide what human programs should be adopted 
with reference to the wealth element among 
human interests. This order and spirit of proced- 
ure, enlarged and specialized, is the methodology 
for which the modern sociologists are contending. 
The economic theory and practice of the 
nineteenth century in England, at least until the 
younger Mill's time, tended farther and farther 
away from Smith's standard. The history of this 
apostasy is one of the most instructive approaches 
to a sane and convincing sociology. 

Before we set out upon the work of justify- 
ing this proposition, it may be well to indicate 
more precisely the point of view from which we 
are to judge economic theory. 

In a word, sociological analysis, so far as it 
has gone at present, has reduced human life on its 
psychical side to evolution of types of interests, 
evolution of types of individuals, and evolution 
of types of association between individuals. With- 
out injecting any .a-priori interpretation whatso- 
ever into these phenomena, we find that they 
are the elements in which psychology and soci- 
ology and ethics find their ultimate problems. 
Moral philosophy, whether it is the conscious and 


deliberate system in the academic mind, or the 
instinctive presumptions back of the catch-as- 
catch-can practice of the man on the street, is a 
reckoning with these primary facts in the human 
lot. Considered as activity alone, without intro- 
ducing valuations of any sort, human life is at 
last the evolution of types of interest, and types 
of individuals, and types of interrelation between 
individuals. Each term in this analysis is an 
indefinitely inconstant variant of each of the other 
terms. That is, interests and individuals and 
associations are reciprocating terms in a widening 
and ascending series of causes and effects. The 
evolution of interests and individuals and associa- 
tions is thus a more or less coherent process ; and 
it is unsafe to assume that we have found the 
meaning of any greater or lesser part of the pro- 
cess until we have made out the whole story of 
its connections with all the rest of the process. 
Every moral philosophy is presumptively a science 
of this whole process of moral evolution. Soci- 
ology, in its largest scope, and on its methodo- 
logical side, is merely a moral philosophy 
conscious of its task, and systematically pursuing 
knowledge of cause and effect within this process 
of moral evolution. 

The inevitable a priori with which every 
attempt at knowledge must begin is, in this case, 


a judgment of the question: On the whole, is it 
better to have faith in this process of moral evo- 
lution and to enlist in it for all we are worth, or 
to distrust it and desert it or resist it? Assum- 
ing that our moral philosophy or sociology has 
chosen the former alternative, then our task of 
interpretation is to explain every human motion 
or collection of motions by all that we can find 
out of its functional meaning within the whole 
cosmos of movements which make up the process 
of moral evolution. Valuations enter into this 
supreme attempt to understand, as into all the 
lesser attempts to understand, from the begin- 
nings of infant reflection. The form of the valua- 
tion always is : What is the worth of the part of 
the process in question, as related to all the rest 
of the process which can be brought into calcula- 

Applying these generalities to the case in hand, 
the question which the sociologist is always im- 
plicitly asking of the economist is: To what 
extent are you making your analyses and passing 
your valuations of economic activities as though 
they were bounded by the wealth interest alone, 
and to what extent do your analyses and valua- 
tions take account of the whole process of moral 
evolution within which the wealth interest is an 
incident? Economic theory, in England and 


America, throughout the nineteenth century, made 
the wealth interest unduly prominent in the pro- 
cess of moral evolution, and thereby introduced 
confusion into the whole scale of moral valuation. 
The present essay makes a beginning of showing 
this in detail. The principal methodological thesis 
which the exhibit is to support is that a sufficient 
interpretation of life to be a reliable basis for 
social programs must express economic relations 
at last in terms of the whole moral process. This 
is true of political economy in so far as it purports 
to be more than a technology of things. To the 
degree in which political economy proposes to 
establish norms for evaluating the activities of 
persons, it must answer to the whole moral pro- 
cess in which all the activities of persons derive 
their meaning. 



Having thus sketched the argument of this 
book, I proceed to develop it somewhat in detail. 
As a further preliminary, I take the precaution 
to state specifically that I am not trying to do over 
again either of various things that have already 
been done by students of Adam Smith. This dis- 
claimer may be expanded in the form of a brief 
account of the sources of our knowledge of Adam 

I. This book is not a biography of Adam 

Until 1895 the chief source of information, 
accessible to the general reader, about Adam 
Smith, outside of his published works, was the 
brief and rather d ilettantish account written by 
Dugald Stewart. This paper was read by 
Stewart before the Royal Society of Edinburgh 
on two evenings of 1793. It was published under 
the title, Account of the Life and Writings of 
Adam Smith, with additional notes, in 18 10. It 
is now to be found in Hamilton's edition of the 
Complete Works of Dugald Stewart, Vol. X; 
also in the same volume of the "Bohn Library" 



which contains Smith's Theory of Moral Senti- 

In 1895 M^- Jol^i^ R^^ pubHshed a biography 
which appeared to have exhausted the visible sup- 
ply of information about Adam Smith the man.^ 

If the additions of fact were not extensive, 
there were certainly corrections of interpretation, 
partly by the help of Cannan's **find" ^ in the 
briefer biography by Hirst which appeared nine 
years, later. ^ If we may characterize the attitude 
of Hirst, it is that of a confessed admirer of 
Smith, with a desire to represent him sympatheti- 
cally and fairly, not merely as the author of two 
or three books, nor as a philosopher, but as a man 
among men. The two closing pages draw a vivid 
and rather effective pen-picture. The argument 
of the book is compressed into the final 
paragraph : 

Of his contemporaries, the nearest perhaps in spirit are 
Turgot and the younger Burke, the Burke of the Ameri- 
can Revolution, and of Free Trade and of Economical 
Reform. But Burke and even Turgot were in a certain 
sense men of the past. Though their radiance can never 
fade, their influence wanes. But Smith has issued from 
the seclusion of a professorship of morals, from the 

^John Rae, Life of Adam Smith (London, 449 pages). 
"^ Cf. below, p. 59. 

^Francis W. Hirst, Adam Smith (London, 1904; 240 


drudgery of a commissionership of customs, to sit in the 
council-chamber of princes. His word has rung through 
the study to the platform. It has been proclaimed by the 
agitator, conned by the statesman, and printed in a 
thousand statutes. 

The purpose of the present inquiry makes no 
demand for biographical evidence beyond that 
which these sources contain. 

2. This book is not an attempt to locate 


That task has been undertaken and per- 
formed, with a large measure of success, by 

In an introduction of fourteen pages, Has- 
bach analyzes Adam Smith's fundamental philo- 
sophical conceptions, and in the body of his 
work he traces the lines of relationship between 
the different divisions of Smith's philosophy and 
his predecessors. 

In general philosophy, he assigns Smith to 
the school of Shaftesbury and Hartley, and in- 
terprets him also in connection with Butler, 
Hutcheson, and Hume. 

* Untersuchungen iiber Adam Smith, und die Entwicklung 
der politischen Oekonomie, von Dr. Wilhelm Hasbach, ausser- 
ordentlichen Professor an der Universitat Konigsberg 
(Leipzig, 1891 ; 440 pages). Cf. above, p. 5. 


In political economy, Hasbach draws lines of 
relationship chiefly between Smith and the suc- 
cession of writers — Hugo Grotius, Pufendorf, 
Christian Wolff, Hutcheson, and the Physio- 

In the science of finance, Hasbach finds it 
more difficult to trace Smith's direct antecedents. 
He finds himself embarrassed by the lack of an 
adequate history of the science of finance, and 
refers to the bibliographical suggestions in the 
treatment of the subject by Cossa, Roscher, 
Stein, Umpfenbach, and Wagner.^ He declines 
to attempt a sketch of the history of finance, but 
discusses instead these questions : first. How 
shall we estimate what Smith did in the science 
of finance as compared with Justi, who preceded 
him in Germany, but with whose work Smith 
was probably not acquainted? and, second. How 
shall we compare Smith's work with that of 
those predecessors from whose writings he pro- 
duced a new science? 

In general methodology, Hasbach relates 
Adam Smith to three previous tendencies, viz. : 
(i) the exponents of deduction — Descartes, 
Thomas Hobbes, and the Physiocrats; (2) the 
exponents of induction — Bacon, Hutcheson, 
Hume, and Montesquieu; (3) the combination 

^ Loc. cit., p. 241. 


of deduction and induction in the system 
of James Stewart. Thereupon follows a 
brief examination of Smith's own methodology. 
Hasbach's book is an extremely helpful propae- 
deutic for the study of Smith, but our inquiry 
takes a quite different direction.^ 

3. This essay is not an attempt to draw a 


This has been done in one notable case by 

Of Oncken's monograph it must be said that 
it is of inferior importance to our inquiry, not 
merely because our search takes a different direc- 
tion, but because no investigation of the type 
represented by Oncken's essay can be of first- 
rate value. It is a comparison between two sys- 
tems of thought, both of which have performed 
their chief service in the world by furnishing the 

' Bonar, Philosophy and Political Economy, Chap. VIII, 
makes a similar attempt to place Smith in the philosophic 

''Adam Smith und Immanuel Kant; der Einklang und das 
Wechselverhdltniss ihrer Lehren iiber Sitte, Staat und Wirth- 
schaft. Dargelegt von Dr. August Oncken, Docent der Staats- 
wirthschaft an der K. K. Hochschule fiir Bodenculture zu 
Wien. Erste Abtheilung, "Ethik und Politik" (Leipzig, 1877; 
276 pages). Cf. above, p. 5. 


stimulus for maturer thought. Oncken's per- 
formance is not wholly unlike a solemn compari- 
son of the architecture of two castles in the air. 
What matters it how we decide? While we are 
reaching our conclusions the castles have vanished 
and their architecture has no meaning. De- 
tached systems of thought, set over against each 
other solely as rival exhibits of the handiwork of 
the mind, are merely archaeological specimens 
almost as soon as they are turned out of their 
authors' brains. How one system compares with 
another in mere static self-consistency is a prob- 
lem only a trifle higher in the scale of impor- 
tance than the question how different types of 
pottery compare with each other. Smith or Kant 
or any other philosopher is of general interest 
only as a factor in the whole system of factors 
that work together in the human advance from 
ignorance to knowledge. 

Oncken reaches a conclusion to which the evi- 
dence will hardly carry less sanguine readers. He 
expects to be taken seriously when he sums up his 
estimate of both Kant and Smith in a description 
which would exactly fit the "Socialists of the 
Chair," of the date at which he wrote ! ^ Without 

* His resume of the argument is in these words : Der 
Staat Smith's ist der namliche wie der Staat Kant's. Beide 
Lehren, im Einzelnen luckenhaft, bilden doch in ihren Zu- 


extending the generalization to Kant, we have 
already noticed, and we shall have occasion to 
observe still further, that Smith uttered opinions 
which, abstracted from the circumstances, 
might easily be interpreted as onsets of social- 
ism. It is even conceivable that his views might 
have developed with the progress of events, so 
that, if he had lived until the third quarter of the 
nineteenth century, his political opinions might 
have been more like Adolph Wagner's than Her- 
bert Spencer's. When Oncken goes beyond that 
and represents Smith as holding a definitely 
thought-out program of the state, radically con- 

sammenhalte einen einzigen vollstandigen Gedankenbau, der 
nicht bios der edelste Ausdruck ihres Zeitalters ist, sondern 
der in der Hauptsache diese Zeit sogar weit iiberragt. Ent- 
gegen der damals tonangebenden individualistischen Auf- 
klarungsphilosophie, welche jede Autoritat und jede zwangs- 
massige Verpflichtung an das Gemeinwesen abwies, ist der 
Staat Smith's wie derjenige Kant's der moderne Staat der 
allgemeinen Wehrpflicht und des Schulzwanges, ja er be- 
schrankt sich namentlich bei Smith nicht auf die Erhaltung 
des starren Rechtszustandes, sondern auch die positive Wohl- 
fahrts- und Wirthschaftspflege sowie die Interessen der Volks- 
veredlung werden in seine Aufgabe hereingezogen. Mit einem 
Worte, es ist der lebendige, geistesmachtige Culturstaat, zu 
welchem das wirthschaftliche Denken unserer Tage wie aus 
der Verbannung in die Heimath zuriickkehrt, nachdem ihm die 
staatlose Begriffswelt der Manchesterschule und des gesamm- 
ten politischen Radikalismus unertraglich geworden ist." 
{Loc. cit., p. 276.) 


trasted with that of the Manchester School, the 
sobriety of his judgment ceases to be impressive. 

4. This book is not an attempt to justify 


The essential matter is not what he thought 
about the particular nature of moral relations, 
but that he conceived of human society as sub- 
ject to moral law of some sort, and of this moral 
law as more authoritative over the members of 
society collectively and severally than the pre- 
cepts of prudence. It is necessary to exhibit at 
some length the evidence on which this 
proposition rests. 

The chief witness on the subject of Adam 
Smith's general moral system is Mr. Millar, once 
a pupil of Smith, later professor of law in the 
University of Glasgow, and an intimate friend 
of Smith until his death. I quote Millar as re- 
ported by Dugald Stewart.^ 

About a year after his appointment to the Pro- 
fessorship of Logic, Mr. Smith was elected to the Chair 
of Moral Philosophy. His course of lectures on this 
subject was divided into four parts. The first contained 
Natural Theology; in which he considered the proof of. 
the being and attributes of God, and of those principles 
of the human mind upon which religion is founded. 

^Account, etc. (Bohn ed.), p. xvii. 


The second comprehended Ethics, strictly so called, and 
consisted chiefly of the doctrines which he afterwards 
published in his Theory of Moral Sentiments. In the 
third part, he treated at more length that branch of -moral- 
ity which related to justice, and which being susceptible 
of precise and accurate rules, is for that reason capable 
of a full and particular explanation. 

Upon this subject he followed the plan that seems to 
be suggested by Montesquieu; endeavoring to trace the 
gradual progress of jurisprudence, both public and pri- 
vate, from the rudest to the most refined ages, and to 
point out the effects of those arts which contribute to 
subsistence, and to the accumulation of property, in pro- 
ducing correspondent improvements or alterations in law 
and government. This important branch of his labors he 
also intended to give to the public; but this intention, 
which is mentioned in the conclusion of the Theory of 
Moral Sentiments, he did not live to fulfil. 

In the last part of his lectures, he examined those 
political regulations which are founded not upon the 
principles of justice, hut that of expediency, and which 
are calculated to increase the riches, the power and the 
prosperity of a State. Under this view, he considered the 
political institutions relating to commerce, to finances, to 
ecclesiastical and military establishments. What he de- 
livered on these subjects contained the substance of the 
work he afterwards published under the title of An In- 
quiry into the Nature and Causes of the Wealth of 

Of the first part of the course little is known, 
and that little may easily be interpreted rather in- 
gloriously. In his lifetime these disparaging 


opinions were not silent. They seem to have 
fallen early out of tradition, but the suggestion 
of them is revived by Haldane.^^ 
He remarks: ^^ 

Of what Smith taught in that first part of his four- 
fold course at Glasgow .... we have no authentic rec- 
ord; but there is abundant internal evidence that it could 
not have been anything either very definite, or that com- 
mitted him very deeply. 

He then broadly hints that Smith held 
theological views similar to Hume's, but did not 
dare to divulge them in a Scotch university. Al- 
though evidence is lacking that Smith was made 
of martyr stuff, Haldane's innuendo does not 
seem justified. The greater probability is that 
Smith's mind was relatively indifferent to meta- 
physics, and that he did not strongly grip the 
questions which the philosophy of his time raised 
with reference to that substratum of philosophy. 
As I shall argue later, he shows more virile 
affinity for the utilitarians than for the a-priori 
philosophers. It is not unlikely that the real 

"Li/^ of Adam Smith, by R. B. Haldane, M.P. (London, 
1887) ; with a bibliography by John P. Anderson of the British 
Museum; i6i-}-x pages. The bibliography is the really 
valuable portion of the book. 

"P. 20. 


energy of his thinking springs from his ethics 
rather than from his theology.^ ^ 

Turning to the second division of Smith's 
moral philosophy, or ethics, it is a gymnastic 
feat of no little difficulty to put ourselves long 
enough in the mental attitude of Smith and his 
contemporaries to understand the quaint classifi- 
cation which served their purposes. Although 
Dugald Stewart was a pupil of the men to whom 
these classifications appealed, he evidently had 
his own troubles with them. At the same time 
his version of them is helpful. I quote his analy- 
sis before speaking of the treatise to which it 
must be applied.^ ^ 

The science of Ethics has been divided by moderns 
into two parts ; the one comprehending the theory of 
Morals, and the other its practical doctrines. The ques- 
tions about which the former is employed are chiefly the 
two following: First, by what principle of our constitu- 
tion are we led to form the notion of moral distinctions : 
— whether by that faculty which, in the other branches of 

" Hirst, Adam Smith, Chap. HI, is worth consulting on this 
point. Although he would probably have resented Haldane's 
slur, if it had been in his mind when he wrote, he throws 
something into that side of the scale. A faint light is shed on 
this subject by Part HI, Chap. V, of Theory of Moral Senti- 
m,ents. (Cf. below, p. 43, and also pp. 53, 54.) 

" D. Stewart, Account, etc., of the Theory of Moral Sen- 
timents, p. xix. 


human knowledge, perceives the distinction between truth 
and falsehood; or by a peculiar power of perception 
(called by some the Moral Sense) which is pleased with 
one set of qualities and displeased with another? 

Secondly, What is the proper object of moral approba- 
tion? or, in other words, what is the common quality or 
qualities belonging to all the different modes of virtue? 
Is it benevolence; or a rational self-love; or a disposition 
(resulting from the ascendency of Reason over Passion) 
to act suitably to the different relations in which we 
are placed? These two questions seem to exhaust the 
whole theory of Morals. The scope of the one is to 
ascertain the origin of our moral ideas ; that of the other, 
to refer the phenomena of moral perception to their most 
simple and general laws. 

The practical doctrines of morality comprehend all 
those rules of conduct which profess to point out the 
proper ends of human pursuit, and the most effectual 
means of attaining them; to which we may add all those 
literary compositions, whatever be their particular form, 
which have for their aim to fortify and animate our good 
dispositions, by delineations of the beauty, of the dig- 
nity, or of the utility of Virtue. 

I shall not inquire at present into the justness of this 
division. I shall only observe, that the words Theory and 
Practice are not, in this instance, employed in their 
usual acceptations. The theory of Morals does not bear, 
for example, the same relation to the practice of Morals, 
that the theory of Geometry bears to practical Geometry. 
In this last science all the practical rules are founded on 
theoretical principles previously established. But in the 
former science, the practical rules are obvious to the 
capacities of all mankind [sic] ; the theoretical princioles 


form one of the most difficult subjects of discussion that 
have ever exercised the ingenuity of metaphysicians 

According to Mr. Hume, all the qualities which are 
denominated virtuous are useful either to ourselves or to 
others, and the pleasure which we derive from the view 
of them is the pleasure of utility. Mr. Smith, without 
rejecting entirely Mr. Hume's doctrine, proposes another 
of his own, far more comprehensive; a doctrine with 
which he thinks all the most celebrated theories of 
morality invented by his predecessors coincide in part, 
and from some partial view of which he apprehends that 
they have all proceeded. 

Of this very ingenious theory, I shall endeavour to give 
a short abstract 

The fundamental principle of Mr. Smith's theory is, 
that the primary objects of our moral judgments with 
respect to our own conduct are only applications to our- 
selves of decisions which we have already passed on the 
conduct of our neighbour. His work accordingly includes 
two distinct inquiries, which, although sometimes blended 
together in the execution of his general design, it is 
necessary for the reader to discriminate carefully from 
each other, in order to comprehend all the different bear- 
ings of the argument. The aim of the former inquiry is, 
to explain in what manner we learn to judge of the 
conduct of our neighbour, that of the latter, to show how, 
by applying these judgments to ourselves, we acquire a 
sense of duty, and a feeling of its paramount authority 
over all our other principles of action. 

Our moral judgments, both with respect to our own 
conduct and that of others, include two distinct percep- 
tions; first, A perception of conduct as right or wrong; 
and secondly, A perception of the merit or demerit of the 


agent. To that quality of conduct which moralists, in 
general, express by the word Rectitude, Mr. Smith gives 
the name of Propriety; and he begins his theory with in- 
quiring in what it consists, and how we are led to form 
the idea of it. The leading principles of his doctrine on 
this subject are comprehended in the following proposi- 
tions : — 

1. It is from our experience alone that we can form 
any idea of what passes in the mind of another person 
.... by supposing ourselves in the same circumstances 
with him, and conceiving how we should be affected if we 

were so situated Sympathy, or fellow-feeling are 

two synonymous words expressing our tendency so to 
enter into the situations of other men. 

2. A sympathy or fellow-feeling between different 
persons is always agreeable to both. 

3. When the spectator of another man's situation, 
. . . . feels himself affected in the same manner .... 
he approves of the affection or passion of this 

By the propriety therefore of any affection or passion 
. ... is to be understood its suitableness to the object 
which excites it ... . ; the perception of this coincidence 
is the foundation of the sentiment of moral approbation." 

This citation from Dtigald Stewart sufficiently 
indicates two things: first, that Smith's sys- 
tem was essentially a theory of moral relations; 
second, that it was a theory the content of which 
has been outgrown. The most important part of 

" This passage is a digest of the five sections into which 
Stewart divides Smith's Moral Theory. 


the practical content of the theory may be added 
in the words of Hirst: ^^ 

Every moralist's, even Epictetus's, description of vir- 
tue is just, as far as it goes. But Smith claims to have 
been the first to give any precise or distinct measure by 
which the fitness or propriety of affection can be ascer- 
tained and judged. Such a measure he finds in the 
sympathetic feelings of the impartial and well informed 
spectator. Here, then, we have the central and peculiar 
doctrine that stamps with originality Adam Smith's 
Theory of Moral Sentiments. 

We may remark, in passing, that the idea of 
the dispassionate observer served the purpose, in 
all Smith's later thinking, which the idea of 
"the on-going of the social process" is beginning 
to serve in modern dynamic sociology. More 
than this, if we analyze the notion of the impar- 
tial observer, we find that his opinions can be of 
no objective value unless they correctly reflect 
the same ultimate standard of judgment which 
is in view in the concept ''on-going of the social 

No more is necessary for the purpose of the 
present inquiry. Stewart's exposition serves to 
show the situation more plainly than it could be 
seen by brief inspection of Adam Smith's own 
works. It shows that the second part of Smith's 
system, or "Ethics," was not intended to be what 

" Adam Smith, p. 56. Cf. above, p. 35. 


we now understand by the term. It was by defi- 
nition first pure metaphysics, and in development 
partly pure metaphysics and partly amateurish 

By a gradation in which we easily trace a sur- 
vival of the Cartesian methodology, the series, 
firstj Natural Theology, second, Ethics, shrank 
in generality and became increasingly specific 
in, third, the theory of Justice, and, fourth, the 
theory of Prudence. Whatever we may think 
about the classification of the two latter subjects, 
Smith made them rather corollaries or emana- 
tions from Ethics. His own treatment of Ethics 
is to be found in The Theory of Moral Senti- 
ments}^ We may get a bird's-eye view of the 
system from the titles of its main divisions : 

Section I. Of the Sense of Propriety 
Chapter I. Of Sympathy. 

Chapter II. Of the Pleasure of Mutual Sympathy. 
Chapter III. Of the manner in which we judge of the 
Propriety or Impropriety of the Affections of other 
Men by their Concord or Dissonance with our own. 
Chapter IV. The Same Subject continued. 
Chapter V. Of the amiable and respectable Virtues. 

"First published 1759; i. e., seventeen years before the 
publication of The Wealth of Nations. 1 quote from the Bohn 


Section II. Of the Degrees of the Different Passions 


Chapter I. Of the Passions which take their origin from 

the Body. 
Chapter II. Of those Passions which take their origin 

from a particular turn or habit of the Imagination. 
Chapter III. Of the Unsocial Passions. 
Chapter IV. Of the Social Passions. 
Chapter V. Of the Selfish Passions. 

Section III. Of the Effects of Prosperity and Adver- 

Chapter I. That though our sympathy with Sorrow is 
generally a more lively sensation than our sym- 
pathy with Joy, it commonly falls much more short 
of the violence of what is naturally felt by the person 
principally concerned. 

Chapter II. Of the Origin of Ambition and of the dis- 
tinction of ranks. 

Chapter III. Of the Corruption of our Moral Senti- 
ments, which is occasioned by this disposition to 
admire the rich and the great, and to despise and 
neglect persons of poor and mean condition. 


Section I. Of the Sense of Merit and Demerit 
Chapter I. That whatever appears to be the proper object 
of Gratitude, appears to deserve Reward; and that, in 
the same manner, whatever appears to be the proper 


Object of Resentment appears to deserve Punish- 

Chapter 11. Of the proper Objects of Gratitude and 

Chapter III. That where there is no Approbation of the 
Conduct of the Person who confers the Benefit, there 
is little Sympathy with the Gratitude of him who 
receives it; and that, on the contrary, where there 
is no Disapprobation of the Motives of the Person 
who does the Mischief, there is no sort of Sympathy 
with the Resentment of him who suffers it. 

Chapter IV. Recapitulation of the Foregoing Chapters. 

Chapter V. Analysis of the Sense of Merit and De- 

Section II. Of Justice and Beneficence 

Chapter I. Comparison of those two Virtues. 

Chapter II. Of the sense of Justice, of Remorse, and 
of the Consciousness of Merit. 

Chapter III. Of the utility of this constitution of nature. 

Section III. Of the influence of fortune upon the 
Sentiments of Mankind, with regard to the 
Merit or Demerit of Actions 

Chapter I. Of the causes of this Influence of Fortune. 

Chapter II. Of the extent of this Influence of Fortune. 

Chapter III. Of the final cause of this irregularity of 


Chapter I. Of the Principle of Self-approbation and 


Chapter II. Of the love of Praise, and of that of Praise- 
worthiness, and of the dread of Blame, and of 
that of Blame-worthiness. 

Chapter III. Of the Influence and Authority of Con- 

Chapter IV. Of the nature of Self-deceit, and of the 
Origin and Use of General Rules. 

Chapter V. Of the Influence and Authority of General 
Rules of Morality, and that they are justly regarded 
as the Laws of the Diety. 

Chapter VI. In what cases the Sense of Duty ought to 
be the sole principle of our Conduct, and in what 
cases it ought to concur with other motives. 


Chapter I. Of the Beauty which the Appearance of Utility 
bestows upon all the productions of Art, and of the 
extensive influence of this species of Beauty. 

Chapter II. Of the Beauty which the Appearance of 
Utility bestows upon the Characters and Actions of 
Men; and how far the perception of this Beauty 
may be regarded as one of the original Principles 
of Approbation. 


Chapter I. Of the Influence of Custom and Fashion 
upon our notions of Beauty and Deformity. 

Chapter II. Of the Influence of Custom and Fashion 
upon Moral Sentiments. 


Section I. Of the Character of the Individual so far 


Section II. Of the Character of the Individual so 


Chapter I. Of the Order in which Individuals are recom- 
mended by nature to our care and attention. 

Chapter II, Of the Order in which Societies are recom- 
mended by Nature to our Beneficence, 

Chapter III, Of Universal Benevolence. 

Section III. Of Self-Command 

Conclusion of the Sixth Part 

Section I. Of the questions which ought to be ex- 
amined IN A theory of the MORAL SENTIMENTS 

Section II. Of the Different Accounts which have 


Chapter I. Of those systems which make Virtue con- 
sist in Propriety. 

Chapter II, Of those systems which make Virtue consist 
in Prudence. 

Chapter HI, Of those systems which make Virtue consist 
in Benevolence, 

Chapter IV. Of Licentious Systems, 

Section HI, Of the Different Systems which have 


Chapter I. Of those systems which deduce the Principle 
of Approbation from Self-love. 


Chapter 11. Of those systems which make Reason the 

Principle of Approbation. 
Chapter III. Of those systems which make Sentiment the 

Principle of Approbation. 

Section IV. Of the Manner in which different au- 


With reference to this system of Moral Phi- 
losophy, I repeat, first, that the present argument 
is in no way concerned with supporting its spe- 
cific contents. In detail it strikes the modern 
mind as naive in many ways. The important 
matter for us is that it was an attempt to state 
life in the large, in moral terms, and that this 
attempt drew the broad outlines of the picture of 
life within which the economic technique after- 
ward analyzed had to find its rating. 

In the second place, we should further fortify 
our argument by pointing out that the main cur- 
rent of moral philosophy in the eighteenth cen- 
tury was essentially non-moral in our modern 
sense, because it was subjective rather than objec- 
tive, individual rather than social. Adam Smith 
was a good illustration of this paradox. His 
moral philosophy was in the world, but not of the 
world, in the sense which makes the difference 
both between speculative and positive morals and 
between individualistic and social morals. Eight- 


eenth-century philosophy attempts to explain the 
world and its people either from a metaphysical 
ground outside of the world and people, or from 
a qualitative analysis of the individual mind. 
Smith's system of morals, for example, rested on 
the principle of approbation in the mental opera- 
tions of the individual. For instance, he says: ^"^ 

When we approve of any character or action, the senti- 
ments which we feel are, according to the foregoing sys- 
tem, derived from four sources, which are in some re- 
spects different from one another. First, we sympathize 
with the motives of the agent; secondly, we enter into the 
gratitude of those who receive the benefit of his actions; 
thirdly, we observe that his conduct has been agreeable to 
the general rules by which those two sympathies generally 
act; and, last of all, when we consider such actions as 
making a part of a system of behaviour which tends to 
promote the happiness either of the individual or of the 
society, they appear to derive a beauty from this utility, 
not unlike that which we ascribe to any well contrived 
machine. After deducting, in any one particular case, all 
that must be acknowledged to proceed from some one or 
other of these four principles, I should be glad to know 
what remains ; and I shall freely allow this overplus to 
be ascribed to a moral sense, or to any other peculiar 
faculty, provided anybody will ascertain precisely what this 
overplus is. It might be expected, perhaps, that if there 
was any such peculiar principle, such as this moral sense 
is supposed to be, we should feel it in some particular 
cases, separated and detached from every other, as we 

" Moral Sentiments, p. 479. 


often feel joy, sorrow, hope and fear, pure and unmixed 
with any other emotion. This, however, I imagine, cannot 
ever be pretended. I have never heard any instance 
alleged in which this principle could be said to exert itself 
alone and unmixed with sympathy or antipathy, with grati- 
tude or resentment, with the perception of the agreement 
or disagreement of any action to an established rule, or, 
last of all, with that general taste for beauty and order 
which is excited by inanimated as well as by animated 

In the proposition which the foregoing quo- 
tation supports, I beheve I have pointed to a 
more precise location of the ultimate principles 
of Smith's system than that contained in In- 
gram's appreciation : ^^ 

As a moral philosopher Smith cannot be said to have 
won much acceptance for his fundamental doctrine. That 
doctrine is, that all our moral sentiments arise from sym- 
pathy, that is, from the principle of our nature "which 
leads us to enter into the situations of other men, and to 
partake with them in the passions which those situations 
have a tendency to excite." Our direct sympathy with the 
agent in the circumstances in which he is placed gives 
rise, according to this view, to our notion of the propriety 
of his action, whilst our indirect sympathy with those 
whom his actions have benefitted or injured gives rise to 
our notions of merit and demerit in the agent himself. 

If I correctly interpret the relations of Smith's 
psychology to his moral philosophy, he made the 

^Encyclopaedia Britannica, 9th ed., article "Adam Smith." 


subjective process, "approbation," arbiter over 
the social process, "sympathy," and not the re- 

If we were studying the growth of psychol- 
ogy, instead of the relation of economic to socio- 
logical thinking, it would be necessary to devote 
some further attention to this element in 
Smith's treatment of the moral sentiments. 
In brief, the argument is an attempt to get a way 
of classifying actions in the objective world by 
finding an order of authority in our affections. 

In spite of everything, the argument had to 
smuggle a value into these moral sentiments 
from the observed outward effects of the kinds 
of conduct that stimulated them. The futility 
and fallacy of this procedure is not even yet very 
plain to many people. Although Smith denied 
that a special faculty was the arbiter of moral 
values, he still held that the standard of moral 
value was in consciousness rather than in the 
system of cause and effect which the mind has to 
interpret. In brief, this eighteenth-century moral 
philosophy was a non-moral theory of moral 
values. It was an attempt to appraise social sub- 
stance in terms of forms of individual apprecia- 
tion. It was thus a means of classifying social 
phenomena according to subjective categories 
and standards. It was not yet on the track of 


the quality of social phenomena as determined 
by their objective effects. 

If a single paragraph may be chosen as an in- 
dex of Smith's method of arriving at a theory 
of ethical judgments, perhaps one of the most 
typical is found in Part III, Chapter I, of Theory 
of Moral Sentiments: 

Were it possible that a human creature could grow up 
to manhood in some solitary place, without any communi- 
cation with his own species, he would no more think of 
his own character, of the propriety or demerit of his 
own sentiments and conduct, of the beauty or deformity 
of his own mind, than of the beauty or deformity of his 
own face. All these are objects which he cannot easily 
see, which naturally he does not look at, and with regard 
to which he is provided with no mirror which can present 
them to view. Bring him into society and he is immedi- 
ately provided with the mirror which he wanted before. 
It is placed in the countenance and behaviour of those he 
lives with, which always mark when they enter into, 
and when they disapprove of his sentiments ; and it is 
here that he first views the propriety and impropriety of 
his own passions, the beauty and deformity of his own 
mind. To a man who from his birth was a stranger to 
society, the object of his passions, the external bodies 
which either pleased or hurt him, would occupy his whole 
attention. The passions, themselves, the desires or aversions, 
the joys or sorrows, which those objects excited, though of all 
things the most immediately present to him, could scarce 
ever be the objects of his thoughts. The idea of them 
could never interest him so much as to call upon his at- 


tentive consideration. The consideration of his joy could 
in him excite no new joy, nor that of his sorrow any new 
sorrow, though the consideration of the causes of those 
passions might often excite both. Bring him into society, 
and all his own passions will immediately become the 
causes of new passions. He will observe that mankind 
approves of some of them, and are disgusted with others. 
He will be elevated in the one case, and cast down in the 
other; his desires and aversions, his joys and sorrows, 
will now often become the causes of new desires and 
new aversions, new joys and new sorrows; they will now, 
therefore, interest him deeply, and often call upon his 
most attentive consideration. 

In this passage approbation in others is made 
the cause of approbation in me, and approbation 
in me is the criterion of the value of approba- 
tion in others. Thus moral sentiments are social 
phenomena, but in this scheme society itself is a 
sort of ghostly affair at best. Smith's own lan- 
guage suggests the analogy with which to de- 
scribe it. Society, according to this account, 
would seem to be a collection of images reflect- 
ing one another back and forth in a group of 
mental mirrors; but there is only a hint of a 
wraith of reality which first gave the mirrors 
something to reflect. This version of moral rela- 
tions contains little of the vitality that we now 
discover. There is really no admitted criterion of 
moral value in Smith's system outside of the 
judgments of individuals. 


Yet we must put the emphasis in the last sen- 
tence on the word "admitted." In spite of the 
individuaHstic and subjectivistic psychology which 
Smith inherited, and from which only a few 
persons, more than a century later, have worked 
themselves partially free, the inevitableness of the 
social in the human lot was constantly impress- 
ing on him the reality of social relations, though 
he kept piously trying to express it in terms of a 
sterile individualism. That is, his unanalyzed 
perceptions were much more genuinely moral 
than his moral theories. ^^ 

The underlying and implicit dependence of all 
moral judgments upon some relation of utility 
that is wider in its scope than the consciousness 
of individuals sometimes breaks out in explicit 
formulation. For instance: 

It is thus that man, who can subsist only in society, 
was fitted by nature to that situation for which he was 
made. All the members of human society stand in need 
of each other's assistance, and are likewise exposed to 
mutual injuries. Where the necessary assistance is recip- 
rocally afforded from love, from gratitude, from friend- 
ship, and esteem, the society flourishes and is happy. All 

" For illustrations see such passages as the two para- 
graphs at the close of Part I, Sec. I, Chap. IV ; the last para- 
graph but one in Part I, Sec. II, Chap. II ; the whole of the 
two following chapters ; much of Part I, Sec. Ill ; the whole 
factor of social utility unconsciously molding the discussion of 
"merit and demerit," Part II, etc. 


the different members of it are bound together by the 
agreeable bonds of love and affection, and are, as it 
were, drawn to one common centre of mutual good offices. 
.... Society cannot subsist among those who are at all 
times ready to hurt and injure one another Be- 
nevolence, therefore, is less essential to the existence of 
society than justice. Society may subsist, though not in 
the most comfortable state, without beneficence; but the 
prevalence of injustice must utterly destroy it." 

It is difificult ill our clay to understand how a 
man of Adam Smith's acuteness could have been 
so near to the premises of an objective moral 
philosophy, without doing as much to develop it 
in form as he did in spirit. Later in the same 
chapter he expressly denies that we learn to ap- 
prove useful conduct and abhor the harmful 
through perception of its consequences. This is 
survival of the sense of duty to save the face of 
dogma, rather than to accept the full value of 
discovery. But this denial does not weaken the 
thesis that Smith regards human society as sub- 
ject to the laws of a sovereign moral system, 
whatever we may think of his conceptions of that 
system. Thus, at the close of the chapter just 
quoted, he remarks : 

For it well deserves to be taken notice of, that we are 
so far from imagining that injustice ought to be punished 
in this life, merely on account of the order of society, 

=* Begitming of Part II, Sec. II, Chap. III. 


which cannot otherwise be maintained, that nature teaches 
us to hope, and religion, we suppose,"^ authorizes us to 
expect, that it will be punished even in a life to come. 
Our sense of its ill desert pursues it, if I may say so, 
even beyond the grave, though the example of its punish- 
ment there cannot serve to deter the rest of mankind, 
who see it not, who know it not, from being guilty of the 
like practices here. The justice of God, however, we 
think, still requires, that he should hereafter avenge the 
injuries of the widow and the fatherless, who are here 
so often insulted with impunity. In every religion, and 
in every superstition that the world has ever beheld, ac- 
cordingly, there has been a Tartarus as well as an Elys- 
ium ; a place provided for the punishment of the wicked, 
as well as one for the reward of the just. 

Smith gives much more direct expression of 
his beHef that our moral judgments, whether on 
matters of greater or less importance, or how- 
ever we may suppose them to have originated, 
are, like the actions which they appraise, all re- 
sponsible to a final scheme of moral order, in 
such language as the following: 

Upon whatever we suppose that our moral faculties 
are founded, whether upon a certain modification of 
reason, upon an original instinct, called a moral sense, or 
upon some other principle of our nature, it cannot be 
doubted that they were given us for the direction of our 
conduct in this life. They carry along with them the 

^ Probably Haldane would cite this sentence as evidence 
that Smith's religious convictions were not perfervid ! Cf. 
above, p. 34. 


most evident badges of this authority, which denote that 
they were set up within us to be the supreme arbiters of 
all our actions, to superintend all our senses, passions and 
appetites, and to judge how. far each of them was either 

to be indulged or restrained The happiness of 

mankind, as well as of all other rational creatures, seems 
to have been the original purpose intended by the Author 

of Nature when he brought them into existence 

By acting according to the dictates of our moral faculties, 
we necessarily pursue the most effectual means for pro- 
moting the happiness of mankind, and may therefore be 
said, in some sense, to co-operate with the Deity; and to 
advance, as far as in our power, the plan of providence. 
By acting otherwise, on the contrary, we seem to obstruct, 
in some measure, the scheme which the Author of Nature 
has established for the happiness and perfection of the 
world, and to declare ourselves, if I may say so, in some 
measure the enemies of God. Hence we are naturally en- 
couraged, to hope for his extraordinary favour and re- 
ward in the one case, and to dread his vengeance and 
punishment in the other.^ 

From a quite different angle of approach, 
Smith arrives at an assertion of the final author- 
ity of moral law, in Part III, Chapter VI : 

There is, however, one virtue, of which the general 
rules determine, with the greatest exactness, every ex- 
ternal action which it requires. This virtue is Justice. 
The rules of justice are accurate in the highest degree, 
and admit of no exceptions or modifications, but such as 
may be ascertained as accurately as the rules themselves, 

^ Part III, Chap. V. 

The sources 55 

and which generally, indeed, flow from the very same 

principles with them In the practice of the other 

virtues, our conduct should rather be directed by a certain 
idea of propriety, by a certain taste for a particular tenor 
of conduct, than by any regard to a precise maxim or 
rule; and we should consider the end and foundation of 
the rule more than the rule itself. But it is otherwise 
with regard to justice; the man who in that refines tlie 
least, and adheres with the most obstinate steadfastness 
to the general rules themselves, is the most commend- 
able, and the most to be depended upon 

The rules of justice may be compared to the 
rules of grammar; the rules of the other virtues to the 
rules which critics lay down for the attainment of what 
is sublime and elegant in composition. The one are pre- 
cise, accurate, and indispensable. The other are loose, 
vague, and indeterminate. 

No wonder that a man who indulged such a 
serene faith that the rules of justice were settled 
once for all, could feel perfectly secure in leaving 
them to take care of themselves, while he turned 
his attention to the rules of prudence! One is 
reminded of the scarcely less naive belief of 
John Stuart Mill, that the theory of value had 
been settled once for all.^^ 

^ "Happily, there is nothing in the laws of Value which 
remains for the present or any future writer to clear up ; 
the theory of the subject is complete ; the only difficulty to 
be overcome is that of so stating it as to solve by anticipation 
the chief perplexities which occur in applying it ; . . . . — 
J. S. Mill, Political Economy, 5th ed., Appletons, 1897, Vol. I, 
P. 537- 


Just as the nature of value was already be- 
ginning to be the nightmare among economic 
problems before Mill died, so the nature and im- 
plications of justice have become the central 
problems of all positive moral philosophy. To 
one who posited a pre-established natural har- 
i':ony, and called that harmony "justice," and 
supposed that the key of the system was securely 
in his possession, the open questions about the 
conduct of life would necessarily be those of pru- 
dence only. The moment of the discovery that 
in an evolving society justice is a matter of 
adaptation; that it is dynamic, not static; that, 
even if we knew its fitnesses today, they may 
become misfits tomorrow — that moment we learn 
that justice is not a code of invariable rules, but 
an adjustment of incessantly changing relations. 
Thereupon we encounter the deeper problems of 
morals: What is the meaning of human life, 
and how may we adjust our conduct accordingly? 
These are not closed but open questions. Smith's 
inherited static notions of society estopped the 
conception that fundamental moral relations 
could be problematical. They were settled 
in advance. The duty of men was to take them 
for granted, and with serious respect for them 
to find out as much as possible about relations 
that are less certain. With the breaking-down of 


the static preconception that has followed the 
work of Darwin all along the philosophic line, 
the moral philosophy, or sociology; which Smith 
could assume as a major premise, has come to 
be the unknown quantity. To use the Spencerian 
idiom, the sentiment of justice occupies the same 
place in modern social philosophy which it held 
in Smith's system; the idea of justice is getting, 
and must get, a changing content with the 
changes in human relations and with the 
progress of analysis of those relations. 

One more quotation may suffice to justify the 
theorem that Adam Smith's philosophy started 
with the conception of a divine order, supporting 
a moral harmony, within which the technical pru- 
dences of life are mere details. In Part VI, Sec- 
tion II, Chapter III, he says: 

The wise and virtuous man is at all times willing that 
his own private interest should be sacrificed to the greater 
interest of the State or sovereignty of which it is only a 
subordinate part; he should, therefore, be equally willing 
that all those inferior interests should be sacrificed to the 
greater interests of the universe, to the interest of that 
great society of all sensible and intelligent beings of 
which God himself is the immediate administrator and 
director. If he is deeply impressed with the habitual and 
thorough conviction that this benevolent and all-wise 
Being can admit into the system of his own government no 
partial evil which is not necessary for the universal good, 
he must consider all the misfortunes which may befall 


himself, his friends, his society, or his country, as neces- 
sary for the prosperity of the universe, and, therefore, 
as what he ought not only to submit to with resigna- 
tion, but as what he himself, if he had known all the con- 
nections and dependencies of things, ought sincerely and 
devoutly to have wished for. 

Nor does this magnanimous resignation to the will of 
the great Director of the universe seem in any respect 

beyond the reach of human nature A wise man 

should surely be capable of doing what a good soldier 
holds himself at all times in readiness to do. 

The idea of that divine Being, whose knowledge and 
wisdom have from all eternity contrived and conducted 
the immense machine of the universe so as at all times 
to produce the greatest possible quantity of happiness, is 
certainly, of all the objects of human contemplation, by 
far the most sublime. Every other thought necessarily 
appears mean in the comparison 

The administration of the great system of the universe, 
however, the care of the universal happiness of all rational 
and sensible beings, is the business of God, and not of 
man. To man is allotted a much humbler department, 
but one much more suitable to the weakness of his 
powers, and to the narrowness of his comprehension, — 
the care of his own happiness, of that of his family, his 
friends, his country: that he is occupied in contemplating 
the more sublime, can never be an excuse for his neglect- 
ing the more humble departments ; and he must not ex- 
pose himself to the charge which Avidius Cassius is said 
to have brought, perhaps unjustly, against Marcus An- 
toninus, that while he employed himself in philosophical 
speculations, and contemplated the prosperity of the uni- 
verse, he neglected that of the Roman Empire. The 


most sublime speculation of the contemplative philoso- 
pher can scarce compensate the neglect of the smallest 
active duty. 

For a century it was supposed that no part of 
Adam Smith's lectures while a professor at Glas- 
gow had been preserved except those portions 
which appeared in the Theory of Moral Senti- 
ments and in The Wealth of Nations. A manu- 
script was found, however, and published in 1896 
by Mr. Edwin Cannan, the title-page of which 
reads : 

Juris Prudence, or Notes from the Lectures on Jus- 
tice, Police, Revenue, and Arms delivered in the Univer- 
sity of Glasgow by Adam Smith, Professor of Moral 
Philosophy. MDCCLXVI.'* 

For students of certain phases of Adam 
Smith's thinking, this rather crude report of his 
lectures is of great value. It adds nothing to the 
evidence needed for our present inquiry, beyond 
an exhibit of the details of justice which, as we 
saw above,^^ Smith regarded as immutable. We 
need notice further only that the report as it 
stands might almost be used as a syllabus of con- 
siderable portions of The Wealth of Nations. 
These include both the political and the economic 

"Cannan, Lectures of Adam Smith (Oxford: Clarendon 
Press; xH-l-293 pages; see "Editor's Introduction," p. xli). 

"" P. 55. 


portions of the latter work. They have also a 
bearing on the question to which we shall be 
obliged to return,^^ viz. : What was the rela- 
tion of Smith's political science to his economic 
science? Considered as a syllabus, or prospectus, 
or first draft, as it was in effect, the course of 
lectures is of value in proof that The Wealth of 
Nations is not a detached monograph. It is 
rather of the very texture of Smith's moral 

In other words, we have here the means, even 
if they were otherwise lacking, for disposing 
of the whole brood of theories of which Skarzyn- 
ski's may serve as an edifying example; viz., 
that Smith was changed from an idealist into a 
materialist by his sojourn in France, and that 
The Wealth of Nations represents Smith's views 
in the latter character, as contrasted with the 
abandoned views of the Theory of Moral Senti- 
2" Pp. 209 ff. 

^ W. Skarzynski, Adam Smith ah Moralphilosoph und 
Schopfer der N ationalokonomie (Berlin, 1886). Skarzynski not 
only places himself in direct opposition to Oncken (cf. above, 
pp. 5, and 29-32), but his book of nearly 500 pages is virtually 
an attempt to prove that Adam Smith was neither a great man 
nor a great thinker. Whether Adam Smith was "great" or 
not, in any sense, is a question which those may discuss who 
have time for that futile type of inquiry. It is enough that he 
has been, and still is, influential. He is among the men whose 


The view on which the present study is based 
has never been expressed more forcibly than by 
Bagehot : ^^ 

Lord Bacon says of some one that he was "like 
Saul" who went in search of his father's asses and 
found a "kingdom;" and that is exactly what happened 
to Adam Smith. He was engaged in a scheme of vast 
research, far surpassing the means at his disposal, and 
too good for any single man. In the course of that great 
pursuit, and as a small part of it, he came upon The 
Wealth of Nations, for dealing with which his powers 
and his opportunities peculiarly fitted him, and on that 
he wrote a book, which has itself deeply influenced thought 
and policy, and which has been the beginning of a new 

5. This book is not a critique of Adam 
Smith's economic doctrines. 

Hirst has vividly described a certain estimate 
of political economy which had more reputable 
sponsors a generation ago than it could find 
today : ^^ 

A heated imagination, certainly not encumbered with 
facts, and informed only that Adam Smith was the 
founder of an odious science, denounced him as "the 

work would have had to be done by somebody, or knowledge 
could not have advanced to its present stage. The pertinent 
question is as to the precise work that Smith did, and as to 
the work still undone in the line of his beginnings. 

^Economic Studies, p. 133. '^ Adam Smith, p. 183. 


half-bred and half-witted Scotchman" who taught "the 
deliberate blasphemy" — "Thou shalt hate the Lord thy 
God, damn His Laws, and covet thy neighbor's goods." 
The same authority declares that he "formally in the name 
of the philosophers of Scotland, set up this opposite God, 
on the hill of cursing against blessing, Ebal against Geri- 
zim, — a God who allows usury, delights in strife and 
contention, and is very particular about everybody's going 
to his synagogue on Sunday."^" These three character- 
istics of Adam Smith's deity were unfortunately chosen; 
for, as it happens, he disliked usury so much that he de- 
fended the laws which had vainly sought to prevent high 
rates of interest; disapproved vehemently of war, which 
he regarded as one of the deadliest enemies of human 
progress, and protested against the idea that a perfect 
Deity could possibly desire His creatures to abase them- 
selves before Him. It is sad to think that to get his 
gold the Ruskinian must pass so much sand through his 
mind. The Fors Clavigera, with all its passionate in- 
tensity and high-strung emotion, is a standing warning 
to preachers not to abuse their masters, and to learn a 
subject before they teach it. Let those who climb so 
recklessly on Ebal deliver their curses from a safer 

On the other hand, Hirst has quite clearly ex- 

^^ See Ruskin, Fors Clavigera, Letters 62 and y2. 

'* An interpretation somewhat in the spirit of Hirst's pro- 
test, and rather clearly showing that it is a peculiarly shallow 
misconception to suppose that Smith was a glorifier of selfish- 
ness, is to be found in the expansion of an academic address 
by Dr. Wilhelm Neurath, Adam Smith im Lichte heutiger 
Staats- tind Socialauffassung (Vienna, 1884). 


pressed the presumption with which this study 
was undertaken : ^^ 

The truth, as Smith conceived it, is that men are 
actuated at different times by different motives, benevo- 
lent, selfish, or mixed. The moral criterion of an action 
is: will it help society, will it benefit others, will it be 
approved by the Impartial Spectator? The economic cri- 
terion of an action is : will it benefit me, will it be profit- 
able, will it increase my income? Smith built his theory 
of industrial and commercial life upon the assumption that 
wage-earners and profit makers are generally actuated 
by the desire to get as high wages and profits as pos- 
sible. If this is not the general and predominant motive 
in one great sphere of activity, the production 
and distribution of wealth. The Wealth of Nations 
is a vain feat of the imagination, and political economy 
is not a dismal science but a dismal fiction. But there is 
nothing whatever either to excite surprise or to suggest 
inconsistency in the circumstance that a philosopher, who 
(to adopt the modern jargon of philosophy) distinguished 
between self-regarding and other-regarding emotions, 
should have formed the first group into a system of 
economics and the second into a system of ethics. 

Since it is not extravagant hyperbole to de- 
scribe nineteenth-century poHtical economy as a 
progressive testing of the economic doctrines of 
Adam Smith, we have a specific case under 
Schiller's generalization, "The world's history is 
the world's assize." To criticize Adam Smith 

^^Loc cit., p. 182. 


adequately, as an economist, would call for a 
mobilization of everything added or opposed to 
his economic teachings, in the whole interme- 
diate literature. But, if this were feasible, it 
would be outside the scope of this study. With 
Smith's economics, as such, so far as the theories 
can be regarded as separable from morals, I have 
no concern whatsoever. That is a technological 
affair about which I profess no competence. Nor 
is this the place for a discussion of the bibliog- 
raphy of economic criticism. If it can be 
imagined that anyone could have followed this 
discussion thus far, who is not already tolerably 
familiar with the landmarks of modern economic 
science, reference may be made to the two most 
convenient handbooks of the subject — Cossa's In- 
troduction to the Study of Political Economy,^^ 
and Ingram's History of Political Economy. ^'^ 
Professor A. C. Miller presented a masterly sur- 
vey of the whole economic movement of the nine- 
teenth century at the St. Louis Congress of Arts 
and Science. ^^ 

^ Revised by the author and translated by Louis Dyer 

»* Preface by E. J. James (1888). 

^ Ecowomic Science in the Nineteenth Century, Congress 
of Arts and Science, Vol. VII, p. 21. 


6. This book is an attempt to show the 


In Other words, it is purely a contribution to 
sociological methodology. Instead of following 
the usual procedure of developing abstract prin- 
ciples algebraically, I shall use Smith's analysis 
as concrete material to bring into view sociologi- 
cal relations which pure economics overlooks or 
ignores. ^^ 

If Adam Smith had lived until today, and 
had reiterated certain of his general views about 
the fundamental conditions of economic rela- 
tions, he would be classed as a socialist, without 
benefit of clergy. At the same time, contrasted 
views have been developed from his principles, 
and these latter have formed the tradition with 
which his memory is most closely associated. 
It is a part of the irony of fate that his name has 
been made synonymous with a conception of 
economics which was essentially alien to his real 
views. The substance of the explanation is, then, 

" For the different editions of The Wealth of Nations refer- 
ence may again be made to Anderson's bibliography, appended 
to Haldane. All references in this essay are to the edition of 
Ernest Belfort Bax ("Bohn's Libraries," London, 1905). 


to recapitulate, first, that Smith's economic sys- 
tem has been considered apart from the whole 
system of moral philosophy of which it was a 
fragment; and, second, that the doctrines which 
Smith formulated quite largely with reference 
to the then existing industrial conditions have 
been treated by his successors as having a degree 
of absoluteness which he never expressly claimed. 
If he had lived until the revolution was fully 
accomplished, he would, without much doubt, 
have returned to some of the fundamentals in his 
moral theory, as basis for restatements of the 
derived doctrines which have been used to bolster 
capitalism in the modern sense. 

I repeat, then, the main proposition: The 
Wealth of Nations was essentially a technological 
treatise; i.e., ''An enquiry into the nature and 
causes of the wealth of nations/' In other 
words, the "natural world" and the type of in- 
dustry being that which Adam Smith knew in 
Great Britain, what was the technique of the 
whole process? It was just as though someone 
should today write a treatise on the best way of 
operating our national banking system. It is 
conceivable that in a generation we might widely 
extend the principle of "asset banking." It is 
conceivable that this change might so far modify 
the whole system that many of the principles 


Stated generally in today's treatise would have to 
be withdrawn or restated. Perhaps it would 
have to be said that they applied in the original 
form only so far as the banking system then in 
operation was still in force. 

Something close to this is the case with much 
of Smith's work, which became part of the 
"Classical Political Economy." It is true, if 
certain presuppositions are granted. It is not 
true if those presuppositions fail to represent the 
social situation. 

Partly as an excursus, and partly as a direct 
advance in the line of the proposed inquiry, I 
take this occasion to comment on a passage in 
Bagehot which has often been misunderstood.^^ 
The point raised will be referred to less directly 
elsewhere in this essay. 

Bagehot opens his chapter entitled "Adam 
Smith and Our Modern Economy," with this 
paragraph : 

If we compare Adam Smith's conception of Political 
Economy with that to which we are now used, the most 
striking point is that he never seems aware that he is 
dealing with what we should call an abstract science at 
all. The "Weahh of Nations" does not deal, as do our 
modern books, with a fictitious human being hypotheti- 
cally simplified, but with the actual concrete men who 

" Walter Bagehot, Economic Studies (2d ed., London, 


live and move. It is concerned with Greeks and Romans, 
the nations of the middle ages, the Scotch and the English, 
and never diverges into the abstract world. Considering 
the natural progress of opulence as an item in greater 
studies, as part of the natural growth of human civiliza- 
tion, Adam Smith always thought how it had been affected 
by human nature, taken as a whole. 

This paragraph has sometimes been cited as 
committing Bagehot to a judgment of Smith 
which was quite the opposite of his actual opin- 
ion. The truth appears when the language is 
interpreted in the light of an earlier passage, 
viz. : ^^ 

. ... in my judgment, there are three defects in the 
mode in which Political Economy has been treated in 
England, which have prevented people from seeing what 
it really is, and from prizing it at its proper value. 

First, — It has often been put forward, not as a theory 
of the principal causes affecting wealth in certain societies, 
but as a theory of the principal, sometimes even of all, 
the causes affecting wealth in every society 

Secondly, — I think in consequence of this defect of con- 
ception Economists have been far more abstract, and in 
consequence much more dry, than they need have been. 
If they had distinctly set before themselves that they were 
dealing only with the causes of wealth in a single set of 
societies, they might have effectively pointed their doc- 
trines with facts from those societies. But, so long as 
the theory vaguely floated before them, they shrank from 
particular illustrations 

^* Lac. cit., pp. 1 6-1 8. 


Thirdly, — It is also in consequence, as I imagine, of 
this defective conception of their science, that English 
Economists have not been as fertile as they should have 
been in verifying it. They have been too content to remain 
in the "abstract" and to shrink from concrete notions, 
because they could not but feel that many of the most 
obvious phenomena of many nations did not look much 
like their abstractions 

The particular Political Economy which I have been 
calling the English Political Economy, is that of which the 
first beginning was made by Adam Smithl^ 

It is more than likely that in the above passage 
Bagehot had John Stuart Mill very clearly in 
his mind's eye. In the preface to his Political 
Economy Mill expressed a judgment of Smith's 
method less divergent from Bagehot's than 
appears at first glance. In stating the aims of 
his own book, Mill says : 

The design of the book is different from that of any 
treatise on Political Economy which has been produced in 
England since the work of Adam Smith. 

The most characteristic quality of that work, and the 
one in which it most differs from some others which 
have equalled or even surpassed it as mere expositors of 
the general principles of the subject [did the author refer 
to his father's textbook?], is that it invariably associates 
the principles with their application. This of itself im- 
plies a much wider range of ideas and of topics than are 
included in political economy, considered as a branch 
of abstract speculation. For practical purposes, political 

'" Italics mine. 


economy is inseparably bound with many other branches 
of social philosophy. Except in matters of mere detail, 
there are perhaps no practical questions, even among 
those which approach nearest to the character of purely 
economical questions, which admit of being decided on 
economical premises alone. And it is because Adam 
Smith never loses sight of this truth ; because, in his ap- 
plications of Political Economy, he perpetually appeals to 
other and often far larger considerations than pure Politi- 
cal Economy affords — that he gives that well-grounded 
feeling of command over the principles of the subject 
for purposes of practice, owing to which the Wealth of 
Nations, alone among treatises on Political Economy, 
has not only been popular with general readers, but has 
impressed itself strongly on the minds of men of the 
world and legislators. 

It appears to the present writer, that a work similar 
in its objects and general conception to that of Adam 
Smith, but adapted to the more extended knowledge and 
improved ideas of the present age, is the kind of contribu- 
tion which Political Economy at present requires. 

Bagehot's more extended analysis of Adam 
Smith's economic method repays careful atten- 
tion. The following is the remainder of the 
first section in the chapter of which the first para- 
graph was quoted above.^^ 

Adam Smith approximates to our modern political 
economists because his conception of human nature is so 
limited. It has been justly said that he thought "there 
was a Scotchman inside every man." His Theory of 

^'^ Economic Studies, pp. 95 ff. (Cf. above, p. 67.) 


Moral Sentiment [sic], indeed, somewhat differs in 
tone, but all through the Wealth of Nations the desire of 
man to promote his pecuniary interest is treated as far 
more universally intense, and his willingness to labour 
for that interest as far more eager and far more com- 
monly diffused, than experience shows them to he*^ 
Modern economists, instructed by a larger experience, 
well know that the force of which their science treats 
is neither so potent nor so isolated as Adam Smith 
thought. They consistently advanced as an assumption 
what he more or less assumes as a fact. 

Perhaps a little unfairly, nothing has more conduced to 
the unpopularity of modern political economists, and to 
the comparative fame of Adam Smith, than this superior- 
ity of their view over his. Of course Adam Smith was 
infinitely too sensible a man to treat the desire to attain 
wealth as the sole source of human action. He much 
overrated its sphere and exaggerated its effect, but he was 
well aware that there was much else in human nature 
besides. As a considerate and careful observer of man- 
kind, he could not help being aware of it. Accordingly he 
often introduces references to other motives, and de- 
scribes at length and in an interesting way, what we 
should now consider non-economic phenomena; and, 
therefore, he is more intelligible than modern econo- 
mists, and seems to be more practical. But in reality he 
looks as if he were more practical, only because his analy- 
sis is less complete. He speaks as if he were dealing with 
all the facts of human nature, when he is not; modern 

" Bagehot does not take the trouble to cite the title of 
Smith's Theory accurately. I find no evidence that he knew 
it at first hand. His comparison between the essay and The 
Wealth of Nations has the effect, therefore, of a random shot. 


economists know their own limitations ; they would no 
more undertake to prescribe for the real world, than a 
man in green spectacles would undertake to describe the 
colours of a landscape.*^ But the mass of mankind have 
a difficulty in understanding this. They think Adam Smith 
practical because he seems to deal with all the real facts 
of man's life, though he actually exaggerates some, and 
often omits others; but they think modern economists un- 
practical because they have taken the most business-like 
step towards real practice — that of dealing with things one 
at a time. 

And it is precisely this singular position of Adam 
Smith which has given him his peculiar usefulness. He 
fulfilled two functions. On the one hand, he prepared 
the way for, though he did not found, the abstract science 
of Political Economy. The conception of human nature 
which underlies the Wealth of Nations, is near enough 
to the fictitious man of recent economic science to make 
its reasonings often approximate to, and sometimes coin- 
cide with, those which the stoutest of modern economists 
might use. The philosophical and conscious ap- 
proximation which we now use has been gradually framed 
by the continual purification of the rough and vague idea 
which he employed. In this way Adam Smith is the legiti- 
mate progenitor of Ricardo and of Mill. Their books 
would not have been written in the least as they are now, 
most likely would never have been written at all, unless 
Adam Smith, or some similar writer, had written as he 
has. But, on the other hand, Adam Smith is the be- 
ginner of a great practical movement too. His partial 

*^ In a later essay, when the economists contemporary with 
Bagehot are under review, I shall enjoy a casual outing with 
this fine feat of imagination! (Cf. below, p. 218.) 


conception of human nature is near enough to the entire 
real truth of it to have been assumed as such in his own 
mind, and to be easily accepted as such by the multitude 
of readers. When he writes he writes about what inter- 
ests most practical men in a manner which every one will 
like who is able to follow any sort of written reasoning; 
and in his time there was a great deal of most important 
new truth, which most practical people were willing to 
learn, and which he was desirous to teach. It is difficult 
for a modern Englishman, to whom "Free Trade" is an 
accepted maxim of tedious orthodoxy, to remember suffi- 
ciently that a hundred years ago it was a heresy and a 
paradox. The whole commercial legislation of the world 
was framed on the doctrines of protection; all financiers 
held them, and the practical men of the world were 
fixed in the belief of them. "I avow," says Monsieur 
Mollien, the wise Finance Minister of the First Napoleon, 
"to the shame of my first instructors," the previous 
officials of France, "that it was the book of Adam 
Smith, then so little known, but which was already de- 
cried by the administrators with whom I had served, 
which taught me better to appreciate the multitude of 
points at which public finance touches every family, and 
which raised judges of it in every household." There 
were many free-traders before Adam Smith, both writers 
and men of business, but it is only in the antiquarian 
sense in which there were "poets before Homer, and kings 
before Agamemnon." There was no great practical 
teacher of the new doctrine; no one who could bring it 
home to the mass of men; who connected it in a plain 
emphatic way with the history of the past and with the 
facts of the present ; who made men feel that it was not a 
mere "book theory," but a thing which might be, and 


ought to be real. And thus (by a good fortune such as 
has hardly happened to any other writer) Adam Smith 
is the true parent of Mr. Cobden and the Anti-Corn Law 
League, as well as of Ricardo and of accurate Political 
Economy. His writings are semi-concrete, seeming to be 
quite so, and, therefore, they have been the beginnings of 
two great movements, one in the actual, and the other in 
the abstract world. 

Probably both these happy chances would have amazed 
Adam Smith, if he could have been told of them. As 
we have seen, the last way in which he regarded Political 
Economy was as a separate and confined specialty ; he 
came upon it as an inseparable part of the development 
of all things, and it was in that connection that he habitu- 
ally considered it. The peculiar mode of treating the 
subject which we now have had never occurred to him. 
And the idea of his being the teacher, who more than any 
one else caused Free Trade to be accepted as the cardinal 
doctrine of English policy, would have been quite as 
strange to him. He has put on record his feelings : — "to 
expect, indeed, that the freedom of trade should ever be 
entirely restored in Great Britain, is as absurd as to 
expect that an Oceania or Utopia should ever be estab- 
lished in it. Not only the prejudices of the public, but 
what is more unconquerable, the private interests of many 
individuals, irresistibly opposed it. Were the officers of 
the army to oppose with the same zeal and unanimity, 
any reduction in the number of forces, with which master 
manufacturers set themselves against every law that is 
likely to increase the number of their rivals in the home 
market; were the former to animate their soldiers, in the 
same manner as the latter enflame their workmen, to 
attack with violence and outrage the proposers of any 


such regulation; to attempt to reduce the army would be 
as dangerous as it has now become to attempt to diminish 
in any respect the monopoly which our manufacturers 
have pbtained against us. This monopoly has so much 
increased the number of some particular tribes of them, 
that, like an overgrown standing army, they have become 
formidable to the Government and upon many occasions 
intimidate the legislature. The member of parliament 
who supports every proposal for strengthening this mo- 
nopoly is sure to acquire the reputation not only of under- 
standing trade, but great popularity and influence with an 
order of men whose numbers and wealth render them of 
great importance. If he opposes them, on the contrary, and 
still more if he has authority enough to be able to thwart 
them, neither the most acknowleged probity, nor the 
highest rank, nor the greatest public services can protect 
him from the most infamous abuse and detraction, from 
personal insults, nor sometimes from real danger, arising 
from the insolent outrage of furious and disappointed 

Yet, in fact, the "Utopia" of Free Trade was introduced 
into England by the exertions of the "master manufac- 
turers;" and those who advocated it, and who were 
"thought to understand trade," said that they had learned 
the doctrines they were inculcating from The Wealth of 
Nations, above and beyond every other book. 

Mr. Bagehot's own account thus aids the closer 
inspection which shows that he and Mill were 
both right. In the first passages compared they 
were not referring to the same factors of Smith's 
method. The former had in view the premature 


generalizations, the insufficient inductions, fre- 
quent in The Wealth of Nations, although they 
were drawn from concrete historical material. 
The latter had in mind the use to which Smith 
wanted to put his generalizations after he reached 

That is, as we shall have occasion to repeat, 
in spite of the admirable concreteness of Smith's 
style, he followed not a single consistent method, 
but he exhibited the strengths and the weak- 
nesses, the virtues and the vices, of both the 
abstract, deductive method, and the concrete, 
historical method, together with the contrasts 
between pure science and a social program. Dis- 
ciples who have carried each of the scientific 
methods to the limit legitimately call him 

In trying to assign the reason why the 
influence of economic theory had waned,^^ Bage- 
hot did not sufficiently allow for another crude- 
ness that is evident in Smith, as well as in the 
later classical economists ; viz. : the technological 
content of classical economics presupposed a more 
statical condition of society than has proved to be 

"In this bifurcation of a method the French sociologists 
have a similar case — the two schools of the followers of 
Le Play. 

** Loc cit., p. 3. 


the case. Not only was this virtually unrecog- 
nized at Smith's time, but even when Bagehot 
wrote a century later, no strong movement had 
appeared for reconsideration of those statical 

Returning from the excursus and reducing the 
whole matter to its briefest form, this is our 
theorem : 

Political Economy, as viewed by Adam Smith, was 
the technology of a practical art which was strictly re- 
sponsible to a moral philosophy that correlated all human 
activities. Political economy, after Adam Smith, lost its 
sense of connection with the large moral process, and 
became the mystery of the craft of the capitalizer. We 
propose an inspection of Adam Smith's economic system, 
for the purpose of showing that in his mind there was 
no antithesis, still less a divorce, between economic tech- 
nology and sociology; and that the organization of the two 
in his philosophy rested upon a general conception of the 
subordinate relationship of all specific activities within an 
inclusive moral system, to which, in effect, though not 
in detail, all students of society must ultimately return. 



With the foregoing propositions sufficiently 
emphasized, we may return to The Wealth of 
Nations itself, and by a second survey confirm 
the general theorem already variously stated; 
viz. : The whole treatise was primarily a tech- 
nological inquiry, with the ways and means of 
producing national wealth as its objective; it as- 
sumed that this interest had a value of its own; 
at the same time it assumed that this interest in 
production is tributary to the interest in con- 
sumption ; it assumes, further, that the wealth in- 
terest in general is but a single factor in the total 
scheme of human and divine purposes, and that, 
whatever the technique of satisfying the wealth 
interest may prove to be, the place of that inter- 
est in the whole harmony of human relations 
has to be established by a calculus in whose equa- 
tions the formulas of economic technique are 
merely subordinate terms. 

All of this was understood by Smith's friend 
Dugald Stewart, and it was uttered by him with 
sufficient clearness more than a century ago. It 



may assist our own insight to recall some of his 
words : ^ 

The foregoing very imperfect hints appear to me to 
form not only a proper, but in some measure a necessary 
introduction to the few remarks I have to offer on Mr. 
Smith's Inquiry: as they tend to illustrate a connection be- 
tween his system of commercial politics [sic], and those 
speculations of his earlier years in which he aimed more 
professedly at the advancement of human improvement 
and happiness. It is this view of political economy that can 
alone render it interesting to the moralist, and can dig- 
nify calculations of profit and loss in the eye of the philoso- 
pher. Mr. Smith has alluded to it in various passages of 
his work, but he has nowhere explained himself fully on 
the subject; and the great stress he has laid on the divi- 
sion of labour in increasing its productive powers, seems 
at first sight, to point to a different and very melancholy 
conclusion : — that the same causes which promote the prog- 
ress of the arts, tend to degrade the mind of the artist; 
and, of consequence, that the growth of national wealth 
implies a sacrifice of the character of the people. 

The fundamental doctrines of Mr. Smith's system 
are now so generally known, that it would be tedious to 
offer any recapitulation of them in this place, even if I 
could hope to do justice to the subject, within the limits 
which I have prescribed to myself. I shall content myself, 
therefore, with remarking, in general terms, that the great 
and leading object of his speculations is, to illustrate the 
provisions made by nature on the principles of the human 
mind, and in the circumstances of man's external situa- 
tion, for a gradual and progressive augmentation in the 

* Account, etc., p. liv. 


means of national wealth; and to demonstrate that the 
most effectual plan for advancing a people to greatness, is 
to maintain that order of things which nature has pointed 
out, by allowing every man, as long as he observes the 
rules of justice, to pursue his own interest in his own way, 
and to bring both his industry and his capital into the 
freest competition with those of his fellow citizens. Every 
system of policy which endeavours either by extraordinary 
encouragements to draw toward a particular species of 
industry a greater share of the capital of the society than 
what would naturally go to it, or, by extraordinary re- 
straint, to force from a particular species of industry 
some share of the capital which would otherwise be 
employed in it, is, in reality, subversive of the great pur- 
pose which it means to promote. 

In Other words, what we know of Adam 
Smith's whole scheme of thinking justifies the 
interpretation that, as it presented itself to his 
mind, what we now formulate as the general 
sociological problem might be explained as fol- 

The destiny of mankind is to work out a cer- 
tain moral achievement. The great intellectual 
task is to understand the conditions and impli- 
cations of that destiny. There are certain grand 
divisions of that task. Not touching upon those 
which belong within the ^cope of so-called 
natural or physical science, the first division of 
the intellectual problem of discovering the con- 
ditions and implications of human destiny — that 


is, the terms in accordance with which mankind 
must learn how to achieve well-being, or happi- 
ness, or progress, or whatever term we may 
prefer to use as the algebraic x to denote the 
content of that undetermined resultant of human 
endeavor toward which we look when we em- 
ploy the concept destiny — the first division of the 
problem of human life in the large, is religious. 
Human life is conditioned by its relations 
to a divine order and purpose. That 
divine purpose must be investigated, and so far 
as possible understood, in order to get the bear- 
ings of human life. Then, without attempting to 
put into Smith's theory details about which we 
cannot get information, we have evidence 
enough to show that, whether as a subordinate 
section of religious relations, or as a jdivision 
of relations somehow parallel with the religious 
relations, there was an ethical division of life. 
If we were to judge merely from the essay on 
the moral sentiments, we should be left to the 
impression that Smith's conception of ethics was 
that it had to do merely with the theory of 
appreciation or evaluation. We know, however, 
that this psychological discussion represented 
merely preliminaries which in his rnind led to the 
doctrines of practical morals, and that the whole 
plexus of moral attitudes with reference to which 


approbation or disapprobation is possible consti- 
tuted in his mind a plane of human activities dis- 
tinct from that which for him made up the 
religious sphere. Then the third division of the 
problem of understanding human life appeared 
to Smith to be that which deals with the history 
and theory of civic justice, the ways and means 
of attempting to secure an approximation to the 
principles of morals which ethics treats in the 
abstract and in the individualistic phases. And, 
finally, as all moral achievement has to get the 
use of material bases and media, it was neces- 
sary to work out a science of the ways and means 
by which the necessary material conditions of all 
spiritual achievement are to be secured. Thus 
Smith's science of wealth had relatively the same 
relation to his whole philosophy of life that the 
technique of marine architecture has to our sys- 
tems of commercial and admiralty and interna- 
tional law. It was not a science of people in the 
fulness of their lives. It was merely a science 
of things and people considered as factors in pro- 
ducing the material equipment of life. 

I repeat that we are not at all bound to justify 
Smith's classification. It is an entirely negligible 
matter that his analysis of moral phenomena 
would not now satisfy anyone. The main thing is 
that he had a definite perception of the mediate, 


and subordinate, and tributary status of wealth, 
and that he betrayed relatively slight symptoms- 
of the tendency, which was so strong in the 
stereotyped classical theory, to assume that the 
wealth factor is the sole arbiter of social rela- 
tions. How to build a ship is one thing. How 
to settle questions of equity between builders, 
and owners, and officers, and crew, and shippers, 
and passengers, and consignees, and other navi- 
gators, and commercial interests of the nations 
at large, is a very different thing. The former 
is analogous with the questions which Smith di- 
rectly raised in The Wealth of Nations. The 
latter are suggestive analogues of the sort of 
questions which he saw the need of raising in his 
wider moral philosophy, and in spite of himself 
indirectly raised in his economic discussion.^ 

We have to justify these propositions by a 
rapid analysis of The Wealth of Nations itself. 

Chapter I expounds the purely technical 
theorem : 

^ The Lectures on Justice, etc. (above, p. 59), contain 
nothing that affects this summary. The treatment is wholly 
historical and legal, in form and substance, except in Parts II 
and III, which might be classed as economic rather than legal 
or historical. At all events, the relation of the lectures to 
antecedent moral philosophy does not appear to have been 
unlike that of The Wealth of Nations, of which, as I said 
ubove, the lectures are virtually a first draft. 


The greatest improvement in the productive powers of 
labor, and the greater part of the skill, dexterity, and 
judgment with which it is anywhere directed, or applied, 
seem to have been the effects of the division of labour. 

This is a proposition which is as far outside the 
range of moral relations, as Smith thought of 
them, as elementary theorems about the 
increased efficiency of power applied by means of 
wedge, pulley, screw, or lever. 

Smith attribufes the increase of work which 
division of labor makes possible to three fac- 
tors: first, to the increase of dexterity in every 
particular workman; second, to saving of time 
usually lost in passing from one species of work 
to another; third, to the invention of machines 
which enable one man to do the work oi many. 

Under the last head he introduces a considera- 
tion which might be generalized beyond the form 
in which he uses it ; viz. : 

All the improvements in machinery, however, have by 
no means been the inventions of those who had occasion 
to use the machines. Many improvements have been 
made by the ingenuity of the makers of the machines, 
when to make them became the business of a peculiar 
trade; and some by that of those who are called philoso- 
phers or men of speculation, whose trade it is not to do 
anything, but to observe everything, and who, upon that 
account, are often capable of combining together the 
powers of the most distant and dissimilar objects.' 

»I. p. II. 


Without restricting this factor to its value in 
the invention of machinery, we may say that the 
division of labor makes room for activities which 
have increasingly remote relations to the produc- 
tive process, and sets free types of action which 
enrich life, whether or not they have a direct 
influence upon processes of producing wealth.^ 

* Mallock, Aristocracy and Evottition (London, 1898), 
opposes to what he is pleased to call sociology, on the one 
hand, and to an equally questionable version of socialism, on 
the other, a ponderous argument, drawn out through three 
hundred and eighty pages, the substance of which is merely 
a variation of this perception of the advantages of the division 
of labor. The thread of wisdom that runs through the book is 
entangled in a woeful snarl of irrelevance and inconsequence. 
His generalizations about sociology fall flat among sociologists, 
because he apparently bounds sociology by Herbert Spencer, 
Edward Bellamy, Benjamin Kidd, and Sidney Webb ! His 
account of socialism is equally provincial. The great-man 
theory which he revises and recommends as a remedy for the 
errors of both, easily boils down to the fact of the advantages 
of specialization: This is all implicitly, and much of it 
expressly, in The Wealth of Nations; it has been exhibited 
much more voluminously by Tarde, although under the inade- 
quate labels "imitation" and "invention ;" it has been general- 
ized most correctly by my colleague, Professor W. I. Thomas, 
in his interpretation "pace-making." 

Mr. Mallock's volume is an ingeniously elaborated insinua- 
tion that the world is shrouding itself in darkness through 
failure to perceive that, of all specializers, the specializer in 
money-making is pre-eminently entitled to its forbearance, its 
admiration, and its fostering favor. The pathos of this appeal 
so overstimulates the "impartial spectator's" sense of humor 
that he is embarrassed in doing justice to the elements in the 
book which deserve serious attention. 


The chapter contains a further theorem which 
squints toward the bearing of economic factors 
upon social structure ; viz. : 

The separation of different trades and employments is 
a consequence of the efficiency of the division of labour, and 
is most extensive in the countries which enjoy the highest 
degree of industry and improvement.'^ 

The concluding paragraphs of the chapter 
constitute one of the classic passages in the litera- 
ture of social description: 

In the progress of society, philosophy or speculation 
becomes, like every other employment, the principal or 
sole trade and occupation of a particular class of citizens. 
Like every other employment too, it is subdivided into a 
great number of different branches, each of which affords 
occupation to a peculiar tribe or class of philosophers ; 
and this subdivision of employment in philosophy, as well 
as in every other business, improves dexterity, and saves 
time. Each individual becomes more expert in his own 
peculiar branch, more work is done upon the whole, and 
the quantity of science is considerably increased by it. 

It is the great multiplication of the productions of all 
the useful arts, in consequence of the division of labour, 
which occasions, in a well-governed society, that uni- 
versal opulence which extends itself to the lowest rank of 
the people. Every workman has a great quantity of his 
own work to dispose of beyond what he himself has occasion 
for; and every other workman being exactly in the same 
situation, he is enabled to exchange a great quantity of 
his own goods for a great quantity, or, what comes to 

» P. 7. 


the same thing, for the price of a great quantity of theirs. 
He supplies them abundantly with what they have occa- 
sion for, and they accommodate him as amply with what 
he has occasion for, and a general plenty diffuses itself 
through all the different ranks of the society. 

Observe the accommodation of the most common artifi- 
cer or day-labourer in a civilized and thriving country, 
and you will perceive that the number of people of whose 
industry a part, though but a small part, has been employed 
in procuring him this accommodation, exceeds all com- 
putation. The woolen coat, for example, which covers 
the day-labourer, as coarse and rough as it may appear, is 
the produce of the joint labour of a great multitude of 
workmen. The shepherd, the sorter of the wool, the wool- 
comber or carder, the dyer, the scribbler, the spinner, the 
weaver, the fuller, the dresser, with many others, must all 
join their different arts in order to complete even this 
homely production. How many merchants and carriers, 
besides, must have been employed in transporting the ma- 
terials from some of those workmen to others who often 
live in a very distant part of the country! how much com- 
merce and navigation in particular, how many ship-builders, 
sailors, sail-makers, rope-makers, must have been employed 
in order to bring together the different drugs made use 
of by the dyer, which often come from the remotest 
corners of the world ! What a variety of labour too is 
necessary in order to produce the tools of the meanest 
of these workmen ! To say nothing of such complicated 
machines as the ship of the sailor, the mill of the fuller, 
or even the loom of the weaver, let us consider only what 
a variety of labour is requisite in order to form that very 
simple machine, the shears with which the shepherd clips 
the wool. The miner, the builder of the furnace for 


smelting the ore, the feller of the timber, the burner of the 
charcoal to be made use of in the smelting-house, the brick- 
maker, the bricklayer, the workmen who attend the fur- 
nace, the millwright, the forger, the smith, must all of 
them join their different arts in order to produce them. 
Were we to examine, in the same manner, all the different 
parts of his dress and household furniture, the coarse 
linen shirt which he wears next his skin, the shoes which 
cover his feet, the bed which he lies on, and all the dif- 
ferent parts which compose it, the kitchen-grate at which 
he prepares his victuals, the coals which he makes 
use of for that purpose, dug from the bowels of 
the earth, and brought to him perhaps by a long sea and a 
long land carriage, all the other utensils of his kitchen, all 
the furniture of his table, the knives and forks, the 
earthen or pewter plates upon which he serves up and 
divides his victuals, the different hands employed in pre- 
paring his bread and his beer, the glass window which 
lets in the heat and the light, and keeps out the wind and 
the rain, with all the knowledge and art requisite for pre- 
paring that beautiful and happy invention, without which 
these northern parts of the world could scarcely have 
afforded a very comfortable habitation, together with the 
tools of all the different workmen employed in producing 
those different conveniences ; if we examine, I say, all 
these things, and consider what a variety of labour is 
employed about each of them, we shall be sensible that 
without the assistance and co-operation of many thou- 
sands the very meanest person in a civilized country could 
not be provided, even according to, what we may falsely 
imagine, the easy and simple manner in which he is com- 
monly accommodated. Compared, indeed, with the more 
extravagant luxury of the great, his accommodation must 


no doubt appear extremely simple and easy; and yet, it 
may be true, perhaps, that the accommodation of an 
European prince does not always so much exceed that of 
an industrious and frugal peasant, as the accommodation 
of the latter exceeds that of many an African King, the 
absolute master of the lives and liberties of ten thou- 
sand naked savages.® 

In its primary purpose the first chapter of 
The Wealth of Nations is no more an essay in 
moral relations than an agricultural chemist's 
statement of the reasons why the virgin soil of 
the Canadian wheat area is more fertile than an 
abandoned farm in New England. It has been 
an effective stimulus of later inquiry into moral 
relations, but it is immediately no more moral, 
as Smith would use the term, than a comparison 
of the vegetation of the temperate and torrid 

In Chapter II Smith discusses "the principle 
which gives occasion to the division of labour." 
The thesis is as follows : 

This division of labour, from which so many advan- 
tages are derived, is not originally the effect of any human 
wisdom, which foresees and intends that general opulence 
to which it gives occasion. It is the necessary, though 
very slow and gradual, consequence of a certain pro- 
pensity in human nature which has in view no such ex- 
tensive utility; the propensity to truck, barter, and ex- 
change one thing for another. 

•Pp. 11-13. 


Of this proposition we may say, first, it is 
methodologically an obiter dictum. That is, it 
belongs in a larger range of inquiry, antecedent 
and fundamental to the technological inquiry to 
which The Wealth of Nations is devoted. It is, 
moreover, a species of inquiry for which Smith's 
scheme of moral philosophy apparently does not 
provide a plane. It is related to the proper sub- 
ject-matter of economics, as conceived by the 
author of The Wealth of Nations, very much as 
an inquiry into the ultimate physical reasons for 
the relative durability of wood and steel would 
be related to an engineer's account of the com- 
parative economy of these materials, as discov- 
ered by experience, for constructing railroad 

In the second place, the exact nature of the 
question which Smith raises in this chapter is 
primarily psychological, and secondarily socio- 
psychological. It is therefore a fair index of 
the closeness of relationship between the phe- 
nomena of industry and the general phenomena 
of individual and social consciousness. In this 
connection Smith's work is a premonition of the 
inevitable awakening of the sociological con- 
sciousness with the unavoidable pursuit of in- 
quiries (which may have started among economic 
phenomena), out into all their relationships as 
moral and psychical phenomena. 


In the third place, the particular explanation 
which Smith proposes is of a piece with the 
mental philosophizings of his time, but it merely 
applies a mouth-filling name to an unanalyzed 
phenomenon. The "propensity to barter" is just 
as much and just as little a distinct and ultimate 
force in human affairs as a "propensity to swim," 
or a "propensity to jump over stone walls," or 
a "propensity to go to the circus." If we fall 
into the water, we try to swim, because we have 
a preference for living. The same fact, appealed 
to from another direction, stimulates us to make 
the best of our ability to get over a wall if we are 
chased by a bull. Certairi desires for nervous 
stimulation find temporary satisfaction in the 
circus, but a thousand alternative recourses may 
serve the same purpose. That is, Smith scratched 
the surface of psychological phenomena, which 
have since his time furnished problems for more 
exact psychology and sociology. 

In the fourth place, w^e may observe that this 
sort of explanation is not yet entirely discredited 
even among rather prominent scholars. Som- 
bart has thought it worth while to ridicule such 
pseudo-explanation at some length.''' 

In this same chapter Smith starts another line 
of inquiry, which is also external to economic 

■^ Moderne Kapitalismus, Vol. I, pp. xxv ff. 


technology, but, like the problem of psychical 
motivation in general, it could not be ignored, 
even at his preliminary stage of research. It is 
strictly an essay in anthropology. The facts in 
the case, quite independent of our apprehension 
of them, are in their degree responsible for many 
social differences, while more or less definite 
theories about the facts are shaping both abstract 
sociological doctrines and concrete social pro- 
grams. He says : 

The difference of natural talents in different men, is, 
in reality, much less than we are aware of, and the very- 
different genius which appears to distinguish men of dif- 
ferent professions, when grown up to maturity, is not so 
much the cause, as the effect of the division of labour. 
The difference between the most dissimilar characters, be- 
tween a philosopher and a common street porter, for ex- 
ample, seems to arise not so much from nature, as from 
habit, custom and education By nature a philoso- 
pher is not in genius and in disposition half so different 
from a street porter, as a mastiff is from a greyhound, or 
a greyhound from a spaniel, or this last from a shep- 
herd's dog.® 

These propositions, taken by themselves, are 
identical with clauses in the doctrines of nearly 
all the modern revolutionary philosophers. They 
are taken for granted by most of the extreme 
socialists. The truth or error of the proposi- 

«Pp. 16 f. 


tions is not before us for discussion in this argu- 
ment. The significant point is that Smith 
instinctively perceived the close relation between 
the technological problems of wealth, and the 
anthropological and psychological and social 
problems of people. 

Chapter III elaborates the thesis that, "as it 
is the power of exchanging that gives occasion 
to the division of labour, so the extent of this di- 
vision must always be limited to the extent of 
that power, or, in other words, by the extent of 
the market." 

In one sense this proposition is strictly physi- 
cal. It is no more to be disputed than the propo- 
sition that the pressure of water at the bottom 
of a tube is in proportion to the height of the 
water in the tube. 

On the other hand, Smith does not hint at the 
broad scope of the question, What makes a 
market? This is a sociological problem in the 
most extensive sense. Its answer must come 
from knowledge of the whole gamut and the 
most refined combinations of human desires. Li I 
Hung Chang is reported to have said that, if he 
could persuade every man in China to add a 
couple of inches to the length of his shirt-tail, 
he could create a market for all the cotton grown 
in America. The population of China is not 


necessarily a market for American cotton. By a 
decree of the imperial government, if Great 
Britain could be induced to acquiesce, China 
might cease to be a market for opium, etc., etc. 
While, therefore, this chapter contains a very 
important principle of economic technology, it 
leaves untouched the much more important so- 
ciological question of the origin and variation of 

The chapter closes with a pertinent political 
application of the principle. It is a typical in- 
stance of the power of artificial social arrange- 
ments, in this case the territorial jurisdiction of 
states, to modify the economic work of natural 
conditions ; viz. : 

The commerce besides which any nation can carry on by 
means of a river which does not break itself into any 
great number of branches or canals, and which runs into 
another territory before it reaches the sea, can never be 
considerable; because it is always in the power of the 
nations who possess that other territory to obstruct the 
communication between the upper country and the sea. 
The navigation of the Danube is of very little use to the 
different states of Bavaria, Austria and Hungary, in com- 
parison of what it would be if any of them possessed the 
whole of its course till it falls into the Black Sea. 

Chapter IV, on "The Origin and Use of 
Money as a Medium of Exchange," does not 
probe farther into the sociology and psychology 


of money than is necessary for immediate ex- 
planation of the obvious phenomena of exchange. 
It therefore has the same relation to ultimate so- 
ciology and psychology that a mechanic's expla- 
nation of the advantages of lubricating oils 
would have to physics and chemistry. The chapter 
contains illustrations in abundance of the psycho- 
logical nature of the forces that have originated 
and modified the use of money through varied 
estimates of convenience. The point of view, 
however, is exclusively that of the technique of 
the economic cycle — production, exchange, divi- 
sion of labor, widening of the market, more 
production, more division of labor, more widen- 
ing of the market, etc., etc. 

At the close of the chapter the author enters 
upon that thus far unbounded sea of troubles, 
the theory of value. 

We discover at a glance, in the light of the 
economic discussion of nearly a century, that 
Smith's treatment of the subject was on a 
relatively superficial plane. That is, he was dis- 
cussing the technique, not the psychology, nor 
the logic, nor the sociology, of money. This 
appears at once in his forms of expression ; e. g. : 

What are the rules [sic] which men naturally observe 
in exchanging them [goods] either for money or for one 
another, I shall now proceed to examine. Three rules 


[sic] determine what shall be called the relative or ex- 
changeable value of goods. 

The word value, it is to be observed, has two different 
meanings, and sometimes expresses the utility of some 
particular object, and sometimes the power of purchasing 
other goods which the possession of that object conveys. 
The one may be called "value in use/' the other, "value in 
exchange." .... In order to investigate the principles 
which regulate the exchangeable value of commodities, 
I shall endeavour to show, first, what is the real measure 
of this exchangeable value; or wherein consists the real 
price of all commodities; secondly, what are the different 
parts of which this real price is composed, or made up; 
and lastly, what are the different circumstances which 
sometimes raise some or all of these different parts of 
price above, and sometimes sink them below their natural 
or ordinary rate; or what are the causes which sometimes 
hinder the market price, that is, the actual price of com- 
modities from coinciding exactly with what may be called 
their natural price.® 

Three chapters follow, on the subjects thus 
proposed. It is easy to point out, at this late day, 
that we open up the whole unknown world of the 
psychology and sociology of value when we begin 
to observe that some tribes will exchange their 
goods for wampum, and some for paper promises 
to pay, and some for gold only. It is easy to find 
in Adam Smith's discussion the points at which 
paths lead farther into the by-ways of these 
subjects than he felt impelled to pry. As a mat- 

• Pp. 28, 29. 


ter of fact, however, we have to follow the whole 
nineteenth-century history of economic theory, 
up to the point where we find John Stuart Mill 
declaring that the theory of value had been 
settled, and then through another generation, 
which encounters more difficulties than ever in the 
theory of value — we have to review this whole 
evolution, to be aware of the full measure of 
difference between the technological treatment of 
value in The Wealth of Nations, and the prob- 
lems that present themselves to modern philoso- 
phers when they attempt to formulate the 
phenomena of money and of value in terms of 
their ultimate relations. 

At the same time, one might easily mistake 
the first paragraph of the fifth chapter for a 
royal road, instead of an untrodden path, into the 
broadest realms of social philosophy. If one did 
not know the sequel, one might with good 
reason surmise that an earlier Karl Marx had 
been discovered. In this paragraph Smith is cer- 
tainly nearer to the fundamental theorem of 
Marx than to the major premises of economic 
theory and practice at the present time, at least 
in England and the United States. The para- 
graph reads as follows : 

Every man is rich or poor according to the degree in 
which he can afford to enjoy the necessaries, conven- 


iences, and amusements of human life. But after the di- 
vision of labour has once thoroughly taken place, it is by 
the very small part of these with which a man's own 
labour can supply him. The far greater part of them he 
must derive from the labour of other people, and he 
must be rich or poor according to the quantity of that 
labour which he can command, or which he can afford to 
purchase. The value of any commodity, therefore, to 
the person who possesses it, and who means not to use or 
consume it himself, but to exchange it for other commodi- 
ties, is equal to the quantity of labour which it enables him 
to purchase or command. Labour, therefore, is the real 
measure of the exchangeable value of all commodities.*" 

We shall have occasion to observe presently 
how Smith restrained himself from follovs^ing 
this clue in the direction w^hich Marx afterv^ard 
took. We may notice, in passing, that, although 
Smith very distinctly reiterated the same theorem 
when discussing the wages of labor (Chap. 
VIII), he approached it as an explanation of the 
problem of value in general and of price in par- 
ticular. It did not occur to him as a class ques- 
tion at all. He was in the course of explaining 
the mechanism of civilized exchanges, and his as- 
sumption was that the mechanism was working 
normally. He was not searching for a clue to a 
situation which he considered abnormal. Prac- 

^^ Cf. Chap. VI, 4th paragraph, p. 48 ; also p. 50, 2d para- 


tically no grievances were alleged against the 
essential structure of the economic system. Such 
charges as were brought against social arrange- 
ments at this time were principally political in 
form, whatever might have been their implicit 
economic content. The antithesis of labor and 
capital, as social categories, was at that time 
virtually unknown. Labor and capital were 
purely economic categories, and could be treated 
as abstractions, whether on the debit or credit 
side of the reckoning, without provoking class 
prejudice. Precisely the opposite was the case 
when Marx wrote, and this was at all events 
an important factor in deciding that in Marx's 
hands a labor theory of value became directly a 
class issue instead of a mere technical distinction. 
Then we must make note of another effect 
upon Smith's mind of the presumption that the 
system which he tried to explain was operating 
normally. That is, he was phenomenally uncon- 
scious, as it appears after a century of closer 
analysis, that commonplace, everyday exchanges 
could not be accounted for by his extremely 
naive theory of price. It would be easy for us 
to make an a-priori argument to the effect that 
a man so wise as he could not possibly have over- 
looked, as he did, some of the plain gaps between 
the facts and his explanation; but the reason is 


evidently to be found in his disregard of the arti- 
ficial and arbitrary social arrangements by which 
civilization complicates the simple order of human 
actions. In other words, when he attempted to 
explain the phenomena of price, his logical pro- 
cess seems to have been, first, a generalization of 
the simplest conceivable exchanges of the prod- 
ucts of labor into the type of all exchanges. 
Then, instead of using that generalization merely 
as a search hypothesis — i. e., to guide a complete 
induction — he used it as a principle for explain- 
ing all exchanges deductively. Of course, this 
amounts logically to begging the question with 
respect to every case of exchange which is not 
used as a means of testing the generalization. 
That is, such a principle once adopted for such 
use is a blind leader of the blind. It glosses over 
the facts instead of exposing them.^^ 

When Smith says, for instance, "Labour was 
the first price, the original purchase money that 
was paid for all things," ^^ he overpersuades him- 
self, more than he is aware, that the same is true 
in the same degree in all purchases. For 
our present purpose it is enough to point 
out that the result was an intolerable vagueness 

" This would be an instance, therefore, illustrating the 
fault which Bagehot charges to Adam Smith. Cf. above, p. 68. 

" P. 30. 


and approximateness in his theory of exchanges. 
Thus he says: ^^ 

The real price of everything, what everything really 
costs to the man who wants to acquire it, is the toil and 
trouble of acquiring it. What everything is really worth 
to the man who has acquired it, and who wants to dis- 
pose of it or exchange it for something else, is the toil and 
trouble which it can save to himself, and which it can 
impose upon other people." 

It is by no means clear precisely what Smith 
meant by these propositions, but any version that 
might be proposed would be ruled out, as an ade- 
quate formula of exchanges, by types of cases 
which could not be so explained. This, how- 
ever, has been the theme of a voluminous 
economic literature for nearly a century. Our 
argument does not call for an examination of the 
progress of analysis on this point. We may 
simply note, by way of illustration, that no 
formulation of the mere mechanism of economic 
exchanges can possibly express the essential facts 
of value and price. These are phenomena re- 
sulting from more than one variable. They are 
psychical and social as well as mechanical. There 

" Ibid. 

" I refrain from turning any light from the "marginal 
utility theory" upon Smith. According to the outline of analy- 
sis of which this essay is a detail, that development must be 
noticed in its chronological order. 


is probably a certain minute portion of the "toil 
and trouble" element in every case of value, but 
whether it is the "toil and trouble" which it 
actually costs the producer to produce it, or the 
"toil and trouble" which it would cost 
the purchaser to produce it, or the "toil 
and trouble" to which the purchaser would 
be liable if he had to go without it, actual ex- 
changes in civilized society could not be expressed 
uniformly in terms of either concept. "Toil and 
trouble" as an equivalent for the term "labor 
expended in production" can in very few cases 
be an equally approximate measure of the reason 
why the seller sells and why the buyer buys. 
Value or price sometimes has one ratio to the 
labor-cost of production or of reproduction, and 
sometimes a quite different ratio. These familiar 
considerations may be summed up in the plati- 
tude: Price or value is a phenomenon of two 
chief variables; viz., first, the conditions govern- 
ing the supply, and, second, the conditions gov- 
erning appreciation as a factor of demand.^ ^ 

In a word, Smith's attempt at an explanation 
of price and value credited labor-cost with too 

" Cf. Simmel, "A Chapter in the Philosophy of Value," 
American Journal of Sociology, Vol. V, p. 577. For further 
concrete illustrations of the lack of precision in Smith's labor 
theory of value, see Bagehot, Economic Studies, pp. 121 flF. 


exclusive significance; or, to express the same 
thing from the other point of view, it failed to 
make due allowance for the subjective and 
social factors in value and price. All this has 
meanwhile been made evident by the economists 
themselves, though it is equally evident that the 
last word has not been said, and that the psy- 
chologists and sociologists have a function in 
tracing the facts to their ultimate elements. 

When Smith touches upon the relation of 
wealth to anything beyond the immediate techni- 
calities of economic processes, his propositions 
affect the modern reader as relatively less appli- 
cable to the real world of today than they were 
to his own time.^^ They are approximations to 
truth, but the approach was so much closer 
when he wrote, that, under the operation of 
present conditions, some of the paragraphs, when 
applied to our world, read almost like satire. 
For example, in immediate connection with the 
sentences just quoted, he continues: 

Wealth, as Mr. Hobbes says, is power. But the person 
who either acquires or succeeds to a great fortune does 
not necessarily acquire or succeed to any political power, 
either civil or military. His fortune may, perhaps, afford 
him the means of acquiring both, but the mere possession 
of that fortune does not necessarily convey to him either. 

^' Again strengthening Bagehot's indictment. See above, 
p. 68. 


The power which that possession immediately and directly 
conveys to him, is the power of purchasing; a certain 
command over all the labour, or over all the produce of 
labour which is then in the market. His fortune is greater 
or less, precisely in proportion to the extent of his 
power; or to the quantity either of other men's labour, 
or, what is the same thing, of the produce of other men's 
labour, which it enables him to purchase or command. 
The exchangeable value of everything must always be 
precisely equal to the extent of this power which it con- 
veys to its owner." 

At first glance we are tempted to say that all 
this is literally true. Upon second thought we 
are impelled to add that it is true only with heavy 
emphasis upon the adverbs "necessarily," "im- 
mediately," "directly," etc. Upon reconsidera- 
tion of the second thought, we conclude that 
even with this proviso the propositions are far 
from adequate. 

In the first place, the possession of wealth in 
large quantities, in our modern world, almost 
of necessity commits the owner to participation 
in affairs, for the sake of preserving, if not of 
increasing, his wealth, to an extent that adds to 
his political or social influence in ways which 
could not be achieved by his bare personality. 
In the second place, it is not true that the total 
power over men exerted by a syndicate control- 
ling a hundred million dollars is merely equal to 

"P. 31. 


the sum of the powers exerted by a million 
detached men, each controlling one hundred dol- 
lars.^ ^ Through the single factor of suggesti- 
bility, to take but a single instance, massed 
wealth becomes a social force which the logic of 
the labor necessary to produce or to reproduce 
it utterly fails to explain. Similar factors might 
be scheduled in large numbers.^ ^ 

Smith advances from his premises of labor 
as the ultimate norm of value, to money as the 
representative of labor in the work of measuring 
value in actual exchanges. Thus : 

But though labour be the real measure of the ex- 
changeable value of all commodities, it is not that by 

which their value is commonly estimated It is more 

natural, therefore, to estimate its exchangeable value by 
the quantity of some other commodity than by that of the 
labour which it purchases. .... But when barter ceases, 
and money has become the common instrument of com- 
merce, every particular commodity is more frequently 
exchanged for money than for any other commodity.^ 

" If it were, there would be no more sense in public atten- 
tion to the few men who form a trust, than in the same sort 
of public attention to the unorganized men in a given popula- 
tion whose combined wealth would equal the capital of that 

" Cf. the case cited at the beginning of The Wealth of 
Nations, Chap. VI, p. 47. Such trade is not a measure of 
comparative quantities of labor at all, but, on one side at least, 
almost purely of childish desire for novelties. 

^Pp. 31, Z2. 


With this the argument becomes more strictly 
technical, from the purely commercial point of 
view, and it thus passes out of the range of our 
present inquiry. 

In Chapter VI, on "The Component Parts of 
Commodities," we come upon a turn of the argu- 
ment which it is by no means easy to understand 
or to appraise. The first reason for this is that 
we cannot be sure how clearly Smith drew the 
distinction between what is and what ought to be 
in the processes of industry. That is, it is by no 
means certain that he always confined himself to 
bare analysis of the occurrences in commerce, 
and we are not always able to tell when he 
wanted to be understood as merely formulating 
the facts, and when he adds to the facts his own 

For instance, speaking of labor, in an ''ad- 
vanced state of society," he says : "In this state 
of things, the whole produce of labour does not 
always belong to the labourer." ^i As a bald 
statement of fact, this is literally true. Does 
Smith, or does he not, mean to imply that the 
extent to which it is true is strictly in accordance 
with equity? We can answer this question only 
vaguely. Smith certainly had no thought of any 
suf^h radical injustice as Marx afterward 
" P. so. 


alleged in this connection. It is not certain that he 
would assert that there was any injustice at all in 
the system of distribution operated by the society 
of his day. This in spite of the fact that in 
certain concrete cases, like those of the colliers 
or the salters, he protested against abuses. He 
had not generalized such items into an indict- 
ment against the industrial system at large. Ap- 
parently he assumed that the more complicated 
system of production, consequent upon division 
of labor, automatically invented a corresponding 
system of distribution, in which the reward of 
each participant in production was assigned in 
strict ratio with the value of his labor in creating 
the product. Whether he would have asserted 
precisely this or not, if the question had been 
distinctly proposed, it is evident that in his mind 
there was not yet a problem of distribution which 
was not settled in advance by the technique of 
production. In the paragraph from which the 
last quotation was made Smith goes on to say: 

Neither is the quantity of labour commonly employed 
in acquiring or producing any commodity the only cir- 
cumstance which can regulate the quantity which it 
ought commonly to purchase, command or exchange for. 
And additional quantity, it is evident, must be due for the 
profits of the stock which advanced wages and furnished 
the materials of that labour. 

We mav not be able to divest our minds of 


associations formed by study of the economic 
literature since Adam Smith. We may do our 
best, however, to judge him for a moment, in 
the cold light of abstract logic, without reference 
to disturbing interests. We may claim to be 
attempting at least to think judicially when we 
call attention to a significant anomaly in this con- 
fident assertion. Is it not remarkable that, so 
soon after declaring labor to be "the real meas- 
ure of the exchangeable value of all commodi- 
ties," ^^ Smith should feel at liberty to take for 
granted that profits are as evidently due 
to the capitalist as wages are to the laborer? 
To be sure, Smith has not in so many 
words said that labor is the only source of 
wealth. He has merely said that labor is the 
only real measure of wealth. At the same time, 
his language conveys the impression that in his 
mind the concepts "source" and "measure" were 
so associated that they amounted to the same 
thing. He said, a few pages later: "Wages, 
profit, and rent are the three principal sources 
of all revenue, as well as of all exchangeable 
value." 2^ Again he remarks : "As in a civilized 
country there are but few commodities of which 
the exchangeable value arises from labour 
only "»4 

=« Chap. V, p. 30. ^ p. 53. " p. 54. 


In Smith's mind the claim of capital to profits 
appeared as evident and immediate as the claim 
of labor to its wage. Not quite three-quarters 
of a century later, Marx launched his system of 
social philosophy centered about absolute denial 
of the claim of capital to profits.^^ Yet, as we 
have seen, the two men seem to have held nearly 
identical views of labor as the ultimate measure 
of right to wealth. How shall we account for 
the evolution of the classical political economy 
and Marxian socialism from so nearly identical 
conceptions of the relation of labor to wealth? 

The truth probably is that Smith's views never 
actually approaclied quite so near to the major 
premise of Marx's system as would appear from 
the things which Smith left unsaid, or from the 
partially uncritical form of the things which he 
actually said. Judged by himself in other con- 
nections, as, for example, the propositions last 
cited, and Chapter IX, "Of the Profits of Stock," 
Smith never entertained a doubt that the pay- 
ment of profits to capital is as strictly and funda- 
mentally consistent with the natural order of 
things as the payment of wages to labor. 
Whether this state of things represented an unde- 
tected contradiction in Smith's mind, or whether 

^ I am referring, of course, to the Communist Manifesto, 
not to Capital. 


it was merely an accident of incomplete formula- 
tion of his views, may never be decided. This 
much is obvious: If Adam Smith had intro- 
duced into economic theory a searching critique 
of the basis of the claims of capital to profits, 
Marx's economic doctrine would in all probabil- 
ity never have put in an appearance. If it had 
appeared, it could hardly, under the supposed 
circumstances, have been fathered by a man of 
Marx's intellectual power. If justice and only 
justice had meanwhile been done both to capi- 
tal and to labor, in the way of working out a 
valid theory of when and why and in what 
proportion each deserves a share of the surplus 
product, Marx might still have become a social- 
ist, but his socialism would certainly have had a 
different point of detachment from orthodox 
economic theory. 

Profits, as the man on the street uses the 
word, is a blanket term which may include ele- 
ments as heterogeneous as wages and graft and 
loot. To some of these elements one capital- 
ist has as clear a title as the laborer has to his 
wage. To others of these elements another capi- 
talist has no more title in equity than the bank- 
breaker has to his stealings. Smith did not feel 
the necessity of a critique of the title of capital to 
profits, because his attention was turned in the 


direction of the productive activities of capital- 
ists, and their consequent title to their 
reward. Marx was intensely impressed by 
the political and commercial usurpations 
which sanctioned arbitrary claims of masters 
and denied some of the natural claims of 
workmen. In Marx's time it was becoming 
necessary to recognize the class cleavage between 
capitalists and laborers. The contrasts between 
their situations were so sharp that it was as easy 
for Marx to assume that the capitalist is not a 
laborer, and consequently not entitled to a wage 
in the form of profits, or otherwise, as it was 
three-quarters of a century earlier for Smith to 
assume that the capitalist is a laborer, and there- 
fore entitled to a wage in the form of profits.^*^ 
Unconsciously, and doubtless with equal intention 
to represent things as they are, both Smith and 
Marx started a fashion of pinning economic 

^^ It is not true, and I do not assert, that Marx utterly 
overlooked the industrial function of the capitalist. He ad- 
mitted it, but then he obscured it in such a way that it has 
been easy for his followers to ignore it, while supposing that 
they were following his teachings. Using the names of Smith 
and Marx to label tendencies for which they were partly 
responsible, I point out the mistaken assumptions of the tend- 
encies, while I am aware that neither Smith nor Marx is 
justly to be charged with deliberately promulgating the extreme 
errors to which their theories have lent force. 


faith to a false universal. In the former case it 
was, "Every capitalist deserves profits." In the 
latter case it was, **No capitalist deserves profits." 
For purposes of analysis we may separate the 
logical from the moral elements in modern 
social theory and practice. Speaking, then, of 
the logical phase only, we may say that the phe- 
nomenon of Marxian socialism is merely, in 
Hegelian terms, the inevitable extreme antithesis 
of Smith's extreme thesis, and that inevitable 
criticism is now ascertaining the elements of 
truth in both false universals, and combining 
them in a synthesis that shall more closely 
approach a true universal. 

yin other words, the classical political economy 
asked the world to take for granted, and make 
permanent, certain accidental differences between 
individuals and classes. Presently the degree to 
which these differences had established them- 
selves presented anomalies which provoked the 
socialist protest in terms which not only 
denounced the anomalies, but justified the con- 
tention on grounds that at once presented corre- 
sponding anomalies. In so far, then, as the 
classical political economy and Marxian socialism 
are merely logical incongruities, the issue 
between them may be reduced to a single prob- 
lem : to discover the direct line of truth between 


the two tangents, ''Every capitalist deserves 
profits," and ''No capitalist deserves profits." 

Although this problem has confronted 
students of society rather definitely for more 
than a half-century, and although it is difficult 
for us to understand how a man of Adam 
Smith's acumen could have been so near to it 
without discovering the need of undertaking a 
solution, it is still uncertain whether the time is 
ripe for securing an unprejudiced hearing for 
the purely abstract problem. Vested interests 
and contesting interests are too much concerned 
about the immediate applications of the possible 
answer to the question. It is hard to discuss it 
without incurring suspicion of partisanship on the 
one side or the other. Yet there is no question 
of abstract principle in the whole realm of social 
science which deserves more immediate attention. 
Nothing could more directly relieve the present 
tension between economic classes than the dem- 
onstration of a valid generalization, and the 
acquiescence of all concerned in the generaliza- 
tion, as a substitute for the present friction 
between the two fallacies just noted. 

Having pointed out that Smith does not hunt 
down the ultimate justification for profits, but 
merely goes back far enough to assert that capi- 
tal would not be employed if profits did not 


accrue, we need not attend further to this step 
in the argument.^''^ 

Smith takes matters as he finds them, and, 
quite in the spirit of routine bookkeeping, charges 
up profits as one of the items of the cost of com- 
modities. To be as specific as possible, he denies 
that profits are a species of wage, and concludes 
that "the profits of stock constitute a component 
part altogether different from the wages of 

" It would be quite in order, however, to take this early 
occasion for challenging the universality of Smith's generaliza- 
tion, which has done yeoman's service throughout the period 
of classical economics. In the great majority of cases, as the 
world now goes, men would seek for safe ways to hoard their 
wealth, if they could not get profits from investments. Of 
course, I am now using the term "profits" in the loose sense 
which includes interest. How much of this disposition would 
yield to other motives, if conditions were changed in quite 
thinkable ways, we need not try to decide. We find the 
actual tendency, however, to put security above income in the 
case of vast aggregates of wealth today. Moreover, men some- 
times prefer to capitalize some of their wealth in economically 
non-productive improvements — architecture and other fine arts, 
museums, endowment of teaching, research of all kinds, explo- 
ration, experimentation in countless lines, etc., etc. That is, 
the motive of acquisition is sometimes overborne by non- 
acquisitive motives. Even in case the desire of gain is upper- 
most, it is not difficult to imagine changes in legal regulations 
which would make investment with no other return than gov- 
ernmental guarantee of the security of the principal, prefer- 
able in many cases to the alternative of personal labor by the 
owner in making his capital productive. In other words, the 
principle that men will not invest their money without pros- 


labour, and regulated by quite different 
principles." ^^ 

Labor, then, being the first element in the 
price of commodities, and profits the second, 
Smith enters as the third element in the schedule 
the item of rent : 

In every society the price of every commodity finally 
resolves itself into some one or other, or all of those three 
parts; and in every improved society all the three enter 
more or less, as component parts, into the price of the 
far greater part of commodities.* 

The question whether or not rent is a part of 
price was not allowed to stand as settled by 

pective profits is unquestionable common-sense for everyday 
use. It would be absurd to calculate upon any other pre- 
sumption for immediate practical purposes. At the same time, 
the principle has no such finality as has usually been claimed 
for it. It is subject to variations even to the degree of entire 
suspension. Before psychology and sociology have their final 
reckoning with economics, the supposition that the prospect of 
profits is an inexorable precondition of the employment of 
capital will be extensively qualified. The fact that it has 
usually passed as final is an incident of the essentially tech- 
nological character of classical economics. It is enough merely 
to mention here that this item in the account between tech- 
nology and philosophy is still unsettled. 

^ P. so. Here again Smith seems to be declaring not only 
what is, but what in his opinion should be ; thus indicating 
that he was unconscious of a debatable issue at the point where 
Marx made his first assault. 

''Pp. 50, 51. 


Smith's dictum, but we may regard it as falling 
so exclusively within the limits of economic tech- 
nology that we need not deal with it in the 
present study. 

Without attempting even to indicate the possi- 
bilities of adding to Smith's theory of price by 
observing the extra-economic social factors which 
are more or less frequent variations of the princi- 
pal factors, it may be suggested, in passing, that 
premium, bonus, prize, stimulus, has been in 
many cases an important element in prices, espe- 
cially in recent times. Whether this element has 
been introduced wisely or unwisely is not in 
question. The element is there. Every patented 
or copyrighted article commands a higher price 
than . it would without legal reinforcement 
of its purely economic claims, and that incre- 
ment is the contribution which society pays to 
spur the individual to effort. It is not always, 
but often, more than the market value of his 
labor, if the other elements of price were alone 
considered. A considerable fraction of the price . 
of tariff-protected articles must be charged up 
to this item. Another element of price, which ^ 
amounts to much more in our day than in Adam 
Smith's time, may be scheduled as the cost of • 
creating the market. Everything which may be 
put under the general head "advertising" is 


referred to in this connection. Whether such 
items as these are of sufficient importance to cut 
much figure in economic theory, they are signifi- 
cant indexes of the constant fact that economic 
processes are always carried on in a larger social 
medium, and are more or less modified by 
influences that are external to the economic 
process itself. 

In this same chapter there is incidentally a 
confession of the naive view which Smith held of 
interest. The revenue derived from stock 
by the person who does not employ it himself, but lends it 
to another, is called the interest or the use of money. 
It is the compensation which the borrower pays to the 
lender for the profit which he has an opportunity of mak- 
ing by the use of money. Part of that profit naturally 
belongs to the borrower who runs the risk and takes 
the trouble of employing it; and part to the lender, who 
affords him the opportunity of making this profit.^" 

Whatever is to be said from the sociological 
point of view about the theory of interest may 
be reserved for application to a maturer form of 
the economic statement. 

At the close of this sixth chapter Smith recurs 
to an item in the general calculation to which he 
had already alluded. He says : ^* 

If the society were annually to employ all the labour 
which it [the annual produce] can annually purchase, as 

^ P. 53. Cf. pp. 127-31; 174, 175, below. '^P. 56. 


the quantity of labour would increase greatly every year, 
so the produce of every succeeding year would be of 
vastly greater value than that of the foregoing. But there 
is no country in which the whole annual produce is em- 
ployed in maintaining the industrious. The idle every- 
where consume a great part of it; and according to the 
different proportions in which it is annually divided be- 
tween those two different orders of people, its ordinary 
or average value must either annually increase or dimin- 
ish, or continue the same from one year to another. 

This again is a perception which carries social 
implications far in excess of its meanng for mere 
economic technique. They have not yet been 
carefully developed, and they have consequently 
not been sanely apphed to theories of social 
progress. They have been obscured by all the 
economic emphases which have been impelled 
by an interest to make it appear that the word of 
economic technology should be the final word in 
social discussion. We shall have occasion to 
recall this passage when we come to analyze the 
latest phases of democratic theory. 

The deeper we get into the current of Smith's 
argument, the more difficult it is (not simply to 
distinguish between factors which are primarily 
technological on the one hand, and primarily 
sociological on the other, but) to resist the 
temptation to abandon our purpose to deal 
exclusively with the sociological factors. Since 


every economic process has relations sooner or 
later with all the other social processes, the con- 
creteness of the economic picture which Smith 
almost invariably presents is a stimulus which 
almost irresistibly prompts the sociologist to 
accept it as a challenge to trace out the extra-eco- 
nomic social elements in the phenomena, even 
when the technical elements are obviously para- 
mount from the point of view of the author's 

The next following five chapters (VII-XI),on 
the general subject of the factors entering into 
the price of commodities, might furnish texts for 
many times that number of chapters on the social 
variants of "natural" and "market" price. If 
we should enter upon a subject of this sort, how- 
ever, it should be with the latest economic formu- 
las as the brief in view of which we should draw 
up our own plea. It would introduce unneces- 
sary confusion if we should attempt to restate in 
sociological terms all of Smith's propositions 
about price. In the first place, they are primarily 
technological , not sociological. In the second place, 
they appear in present economic theory with 
much revision, so that to a considerable extent 
we should be wasting our strength trying to do 
over again much that the economists have mean- 
while done, if we tried to restate Smith's doc- 


trines in detail. Our cue at this point, therefore, 
is, first, to note that the argument now becomes 
relatively technical, with the extra-economic fac- 
tors relatively negligible ; second, that at the out- 
set of this technical inquiry a prime sociological 
question is waived, and that this sociological 
question is ever present with us when we face our 
practical problems of correlating our economic 
systems with the remainder of our institutions. 
We must make this last statement more explicit. 
At the beginning of Chapter VII Smith intro- 
duces the distinction between "natural" price 
and "market" price. He says: 

There is in every society or neighbourhood an ordinary 
or average rate both of wages and profit in every different 
employment of labour and stock. This rate is naturally 
regulated, as I shall show hereafter, partly by the general 
circumstances of the society [sic], their riches or pov- 
erty, their advancing, stationary or declining condition; 
and partly by the particular nature of each employment. 

There is likewise in every society or neighbourhood an 
ordinary or average rate of rent, which is regulated 
too, as I shall show hereafter, partly by the general 
circumstances [sic] of the society or neighbourhood in 
which the land is situated, and partly by the natural or 
improved fertility of the land. 

These ordinary or average rates may be called the 
natural rates of wages, profit, and rent, at the time and 
place in which they commonly prevail. 

When the price of any commodity is neither more nor 


less than what is sufficient to pay the rent of the land, the 
wages of the labourer and the profits of the stock em- 
ployed in raising, preparing and bringing it to market, 
according to their natural rates, the commodity is then 
sold for what may be called its natural price. 

The commodity is then sold precisely for what it is 
worth, or for what it really costs the person who brings it 
to market 

The actual price at which any commodity is commonly 
sold is called its market price. It may either be above, or 
below, or exactly the same with natural price.^^ 

As a rough and ready formal division, the 
distinction is of course perfectly familiar and 
obvious and necessary. When we attempt to 
apply it to a concrete case of price in a modern 
community, however, we encounter a difficulty, 
not with the formal principle of division, but with 
questions of fact which should determine the 
application of the principle. Perhaps the essence 
of the matter may be suggested by a mere verbal 
correction. If we substitute for the phrase 
"natural price" the term "customary price," we 
at once raise the question whether there is a dif- 
ference between the two concepts. If we think 
the question through, there is little room for 
doubt that Smith's phrase harbors a fundamental 
fallacy. The "customary," in price as in other 
things, may be far from the "natural," if we 

'' Pp. 55, 56. 


mean by ''natural" that which is most nearly in 
accord wtih the permanent or essential nature of 
things. For instance, suppose a community has 
for a generation been paying for its illuminating 
gas a price which includes a profit on watered 
stock equal to two or three times the market 
rates of interest on the actual capital invested. 
If we adopt the contention of the gas company 
that it is entirely within its rights in watering 
its stock and in treating the fictitious investment 
as though it were real, then it would make no 
difference whether we used the phrase "natural" 
or "customary" price. In other words, so soon 
as prices, whether in the element of rent, or 
profits, or wages, come to be in question on 
grounds of equity, it makes all the difference in 
the world with our decision how much of the 
variable and arbitrary "general circumstances of 
the society" we assume to be natural and neces- 
sary, and so inflexible factors of price. 

All the mooted social questions of today over 
economic claims of various classes are to a, 
greater or less degree contests over the claim 
that vested or customary rights are natural 
rights. There is never a question between de- 
mocracy and privilege, especially if the privilege 
has actually been exercised, in which it is not 
contended, openly or tacitly, on the side of the 


privilege, that the privilege is in accordance with 
the eternal nature of things. At this moment 
the extreme "stand-patters" on the subject of the 
American tariff do their best to make their fel- 
low-citizens believe that the bonus which the law 
gives them is a price which they have as natural 
a right to collect of the consumer as the laborer 
has to collect his hire. The men who have fixed 
railroad rates in the past want perpetual freedom 
to make rates without governmental control, and 
they claim that such freedom is "natural," while 
governmental control is unnatural. 

That is, all the conventionalities which fix the 
standard of living in a given community may for 
a long time be taken for granted, and accord- 
ingly the wage of unskilled labor may be less for 
a month in Russia than the wages for the same 
class of labor may be for an eight-hour day in 
some parts of the United States. The Russian 
employer and the American employee could not 
be brought to an agreement as to which of these 
rates of wages, if either, represented the "natural" 
price of labor. So far as the bookkeeping of a 
particular industry is concerned, or the condi- 
tions of competition in a given market, custom- 
ary price may be treated as "natural" price. But 
the moment price becomes a moral question, by 
being brought into the arena of conflict between 


groups with antagonistic interests in distribution, 
then the previous question is always in order; 
viz. : How much of customary market valuation 
is not natural but unnatural? To what extent 
have the conventionalities of society interfered 
with the natural equilibration of the claims of 
all the members of society? 

Again we must remind ourselves that at 
Adam Smith's time there was a minimum of 
occasion for imagining that there could or should 
ever be any considerable modification in the laws 
of property in Great Britain. British institu- 
tions, on their strictly economic side at least, 
as distinguished from the politico-economic 
phases as involved in such a question as restricted 
or free foreign trade, must have seemed to Smith 
nearly as firmly settled as the rock-bound coasts 
of the kingdom. It cost him no stretch of the 
imagination, no stultification of mind or con- 
science, to assume that the customary social 
stratification, from landed gentlemen to navvy, 
was in rough correspondence with natural law. 
In the middle of the nineteenth century, on the 
contrary, especially in Germany, doubts had 
already disturbed such sunny satisfaction. To- 
day the operation of the same principles which 
Smith took for granted produces anomalies 
which no judicially minded person can overlook. 


We have come to understand that there are really 
three categories of price, instead of two. We 
may call these "customary price," ''market price," 
and "normal price." The last phrase means just 
what the words might have meant to Adam 
Smith, minus the implication that the third and 
the first categories necessarily correspond. 
Everyone who perceives that the last valuation 
of everything in this world must be in terms of 
people, not in terms of commodities, is beginning 
to draw the inference that there is always an 
open question whether the current scale of prices 
takes sufficient account of human values to 
approach as near as possible to normal prices. 

I am not at all sure that socialists of the 
Marxian or any other type are really nearer in 
sympathy than Adam Smith was to the practical 
application of the human measure of value. So- 
cialism seems to be, in fact, in the aggregate, less 
a contention for application of deeper moral 
principles, than a contention for admission of a 
larger number of people to a share in the divi- 
dends of the moral principles than now prevail in 
society. Socialism does not seem to be really a 
program of more respect for men, but rather 
of respect for more men. So far as it goes, even 
this is an impulse in the direction ^of more au- 
thentic democracy. More radically democratic, 


however, than any sociahstic principle, is the 
perception that the capacity of people to convert 
material goods and opportunities into higher 
values is the last measure of price which it is 
possible to apply. It is always an open social 
question whether there are artificial and arbi- 
trary restrictions of the equal freedom of all 
to exercise this capacity. So far as a disposition 
to entertain this question is an item in "the 
general circumstances of the society," a force is 
at work tending either to strengthen prices, 
because they approximate a scale dictated by 
due appraisal of human values, or to rearrange 
prices with more regard for the human term in 
the calculation. 

There is no fig-leaf of economic shame dis- 
creetly drawn over Smith's admission that all the 
products of labor belonged to the laborer till 
private property in land and the accumulation of 
stock made a new situation. ^^ Although Smith 
regarded these as artificial, in a sense contrasted 
with primitive, it does not seem to have occurred 
to him that they were artificial in a sense opposed 
to his term "natural" any more than the division 
of labor itself. There was nothing to excuse 
about one of these phenomena more than about 
all. In spite of keen vision for what he would 

'^ Chap. VIII, p. 65. 


regard as the accidents of a system which was 
essentially rational or "natural," in spite of such 
details as that, "We have no acts of parliament 
against combining to lower the price of work; 
but many against combining to raise it," ^^ 
Smith accepted the ground-plan of British eco- 
nomic institutions as unassailable. The infer- 
ences drawn by Marx from premises so nearly 
identical with those of Smith would have seemed 
to the latter so preposterous that he was under 
no sort of embarrassment in stating those prem- 
ises with perfect frankness. No social phenom- 
ena had appeared to make Smith doubt that in 
general the capitalist's claim to profits and the 
landlord's claim to rent is as clear as the laborer's 
claim to wages. In other words, slightly varying 
our previous statement, Smith did not doubt 
that the wage system was essentially a righteous 
system, in spite of the fact that it permitted a 
part of the product to go to the landlord, and 
another part to the capitalist. The reasons which 
seem to account for this apparent anomaly in 
Smith's thinking have already been referred to. 
They may be grouped under two heads: first, 
the incomplete differentiation of laborer, capital- 
ist, and landlord at Adam Smith's time; second, 
the virtual universality of the functionally useful 
»* P. 67. 


landlord and capitalist, wherever the differentia- 
tion had occurred. ^^ That is, there was hardly 
more room for doubt that the typical country 
gentleman was an active part of the system of 
agricultural production than that the farm hands 
on the estate were economically productive; and 
there was scarcely more doubt that the typical 
capitalist was an active factor in the production 
of manufactured goods than there was that the 
hands in the mills were producers. To express 
it in another way, at Adam Smith's time it was 
in general true that a man was a landlord because 
he was a producer, and a producer because he 
was a landlord. In like manner, another man 
was a capitalist because he was a producer, and 
a producer because he was a capitalist. In either 
case the landlord or the capitalist was doing 
work that would have to be done by somebody, 
if the given line of industrial efficiency were 
maintained, regardless of the political and legal 
arrangements that adjusted property rights with- 
in the industrial system of the country. There 
was a minimum of occasion for the kind of 
analysis which would press the question : Is the 
title of the landlord and the capitalist to a part 
of the product based on their function in produc- 
tion; that is, are these types merely varieties of 

*' Cf. pp. 149-52, below. 


laborers, worthy of their hire like other laborers; 
or is that title based merely on their legal rela- 
tions to the politico-economic system through 
the institutions of property? Since this ques- 
tion was not distinctly presented, it was easy for 
the economic theorist to entail upon his successors 
the confusion which we discussed above from a 
slightly different point of view. Landlord and 
capitalist, as landlord and capitalist, were not 
sharply distinguished from landlord and capital- 
ist as laborers. So it came about that a certain 
odor of sanctity was thrown around the purely 
legal claims of landlord and capitalist, and this 
presumption excluded from economic theory 
unprejudiced examination of the difference 
between their claims as landlord and capitalist 
and their claims as laborers. Thus economic 
theory failed to discriminate at the outset between 
the mere problem of accounting, between differ- 
ent partners in a productive process, and the 
moral problem of property rights based on any 
other grounds than the relative value of services 
performed by different individuals. This sup- 
pressed moral element in social theory was a part 
of the force that presently exploded in the form 
of Marxian socialism. It has also furnished a 
large fraction of the energy of general sociology. 
We mav reduce the statement of the abortive- 


ness of early economic theory to this form : There 
are questions of fact and of principle between 
claims to material goods based on labor, and 
claims based on conventionality. Th^ former 
claims we may call essential; the latter we may 
call institutional. Traditional economics assumed 
that in their main lines essential and institutional 
economic claims corresponded. As the social 
system became more developed, the phenomena 
of property presented anomalies which impeached 
this assumption. The differences between the 
classical economists and all their critics run back 
to this one contrast. The latter have all along 
insisted that the impeachment ought to be tried. 
The former have protested that it should not. 

Thus the issues between technical economics 
and social philosophy in general are not economic 
questions if we confine the term to classical 
definition. They are moral questions which 
economists have supposed to be coterminous with 
principles of economic technology. For instance, 
there is really no difference between Smith and 
Marx on the economic elements in the principles 
of profits, nor between Ricardo and Marx on the 
economic elements in the principles of rent. The 
quarrels between them arise over the righteous- 
ness of social arrangements which impute to 
classes of individuals economic functions in 


accordance with the principles, and which assign 
to those classes corresponding shares of goods, 
while their actual share in the economic process is 
questionable. Economic theory became conse- 
quently a supporter of the system which assumed 
the inviolability of the existing institutions of 
property in land and capital. Demanding that this 
question of inviolability be begged at the outset, 
economic theory made scientific impeachment of 
those institutions merely a question of time. 
Bent on blocking any inquiry which probed back 
of the righteousness of the ground-plan of our 
institutions of property, economic theory has 
been driven to amusing dodgings from pillar to 
post in recourse to one explanation after another 
which sought to justify vested rights on any other 
ground than a social-service basis; i. e., that the 
individual who enjoys the rights fulfils his part 
of the social give-and-take by being a worker in 
return for what he gets. 

Again we point out the probability that there 
would have been no Marxism, except as a politi- 
cal movement, if economic theory, from Adam 
Smith's time, had squarely faced the problem: 
What are the primary economic elements, and 
what are the accidental conventional elements, in 
our system of property rights? We should prob- 
ably have been spared a large part of the confu- 


sion which permits certain types of social agi- 
tators to treat all private ownership of land as in 
principle and in practice absentee landlordism, 
and all private ownership of capital as in prin- 
ciple and in practice stock-watering and gambling. 
Modern sociology is a necessary protest as much 
against the extreme prejudice of the economists 
as of the socialists.^^ 

Another of the passages which provoke specu- 
lation as to the direction which Adam Smith's 
theory would take if he lived in our time occurs 
in this chapter. ^^ It is as follows : 

Is this improvement in the circumstances of the lower 
ranks of the people to be regarded as an advantage or as 
an inconvenience to the society? The answer seems at 
first sight abundantly plain. Servants, labourers, and 
workmen of different kinds, make up the far greater part 
of every great political society. But what improves the 
circumstances of the greater part can never be regarded 
as an inconveniency to the whole. No society can surely 
be flourishing and happy, of which the far greater part 
of the members are poor and miserable. It is but 

'" The beginnings of the classical subsistence-minimum 
theory of wages, as contained in Chap. VIII of The Wealth of 
Nations, may be passed over in this discussion, for the reason 
that the technological aspects are made foremost, and the moral 
question is not allowed to emerge. Thus the subject in this 
form is an illustration of the above remarks about the sup- 
pression of the paramount issue. The beginnings of the wage- 
fund theory are also in this chapter (p. 70). 

^P. 80. 


equity, besides, that they who feed, clothe and lodge the 
whole body of the people, should have such a share of 
the produce of their own labour, as to be themselves toler- 
ably well fed, clothed and lodged.^^ 

The only comment necessary is that in the 
author's mind the phenomena of economic dis- 
tribution still had something to do with ''equity.'' 
If he had believed that anything like the "iron 
law of wages," which later theory asserted, told 
the whole story, such a reference to "equity" 
would have been an impertinence. The passage 
immediately following this paragraph may be 
called the prologue to Malthus' Essay. 

The discussion of "The Profits of Stock," in 
Chapter IX, continues the presumption that there 
is no occasion for inquiry back of the prevailing 
British economic system. The chapter is in no 
sense an investigation of the social basis of the 
system. It is merely an explanation of the way 
the system works. The principal theorem is in 
the first two paragraphs, viz. : 

The rise and fall in the profits of stock depend upon 
the same causes with the rise and fall in the wages of 
labour, the increasing or declining state of the wealth of 
the society; but these causes affect the one and the 
other very differently. 

The increase of stock, which raises wages, tends to 
lower profit. When the stocks of many rich merchants 

^ Italics mine. 


are turned into the same trade, their mutual competition 
naturally tends to lower its profits; and when there is a 
like increase of stock in all the different trades carried 
on in the same society, the same competition must pro- 
duce the same effect in them all. 

We have said above all that is necessary to 
mark the relation between these purely techno- 
logical propositions and the more fundamentally 
moral question of principles of distribution.^^ 
Neither the present propositions, nor the subse- 
quent controversies about the relations which they 
purport to formulate, are our direct concern. 
They affect this argument only when they leave 
the field of economic technique and touch upon 
antecedent principles of social organization. 
Smith recognizes the extra-economic variants in 
the returns from capital in such instances as 
these : ^^ 

A defect in the law [sic] may sometimes raise the 
rate of interest considerably above what the condition 
of the country, as to wealth or poverty, would require. 
When the law does not enforce the performance of con- 
tracts, it puts all borrowers nearly upon the same footing 
with the bankrupts or people of doubtful credit in better 
regulated countries. The uncertainty of recovering his 
money makes the lender exact the same usurious interest 
which is usually required from bankrupts. Among the 
barbarous nations who overran the eastern provinces of 

'•P. 119, et passim. "P. 98, Chap. IX. 


the Roman Empire, the performance of contracts was 
left for many ages to the faith of the contracting parties. 
The courts of justice of their kings seldom intermeddled 
in it. The high rate of interest which took place in those 
ancient times may be partly accounted for from the same 

This passage not only recognizes that less 
effective legal administration affects property- 
rights unfavorably, but it also implies that a more 
effective legal administration affects property 
rights favorably. ^^ Here again is a neglected 
point of departure for a wider inquiry than 
classical economic theory or practice looked upon 
with favor. We may say that the problem was 
near at hand : Under what circumstances, and in 
accordance with what major and minor prin- 
ciples, does it become the public interest that the 
operation of economic self-interest should be 
modified by positive law? Instead of facing the 
problem candidly, the whole prestige of classical 
economics was exerted in the nineteenth century 
to discredit every tendency to entertain this 
fundamental question. The assumption of classi- 
cal economics was that all the laws which fortified 
existing property interests were "natural,'' while 
all laws which might tend to readjust existing 

" Chapter X, Part II, is another illustration of the same 


property interests would be unnatural.'*^ This 
was both moral and logical fallacy. In theory it 
begged the question, and in practice it exerted the 
right of might. To that extent it reduced eco- 
nomic theory and practice to the status of an 
untenable social provincialism. The human per- 
ception that people are more than property was 
bound sooner are later to repudiate that provin- 
cialism. Marxian socialism is the extreme anti- 
thesis of the smug assumption of the classicists 
that conventional property rights are the normal 
standard of public interests. Modern sociology 
protests against the tendency at either extreme to 
treat the question as an issue to be settled by 
measure of strength between classes. It is a ques- 
tion of social economy in the deepest sense. It is 
a question of the ways and means of allowing all 
human interests to realize themselves most har- 
moniously. Whether the property institutions of 
a given society afford the fairest field for pro- 
portionate realization of all the social interests, 
is a question that will always be in order, just as 

" This proposition is apparently contradicted by the sturdy 
fight of Adam Smith and some of his successors for "free 
trade." The proposition is essentially correct, in spite of this 
and other seeming exceptions. The wealth interests of any 
country will easily convince themselves that it is "natural" 
for the laws to give them more favor, but they will seldom 
see anything "natural" in limitations of their scope. 


much as the engineering question whether power 
and friction in a given machine have been reduced 
to the most efficient adjustment. 

The initial fallacy of the system which de- 
veloped from Smith's beginnings was, not that it 
denied the existence of factors which vary the 
operation of economic self-interest, but that it 
assumed a permanent equilibrium between these 
factors, a static condition so far as division of 
function between economic and political forces 
was concerned; and it resisted all impulses to 
test the validity of the assumption. Whether 
increasing divergence of economic class interest 
had provoked attacks upon this position or not, 
it is logically so naive that it could not perma- 
nently have escaped detection as obvious sophis- 
try. The most rudimentary sociological analysis 
distinguishes between social conditions that are 
due principally to the action of unmixed eco- 
nomic forces, and those that are affected by the 
volitions of individuals or groups. In so far as 
social conditions are a product of the latter fac* 
tor, or are susceptible of modification by the 
latter factor, it is always a pertinent problem, 
first, to what extent the conditions are due to 
human will, and, second, to what extent, and by 
what means, further exercise of human will 


might be in accordance with the entire system of 
human interests. 

The failure of classical economics to remain 
on the level of Adam Smith's moral philosophy 
is not to be found primarily in its specialization 
upon economic technology, but in its dog-in-the- 
manger spirit and practice toward the larger 
questions than those of mere economic technique, 
which had a fairly intelligent place in Smith's 
thinking. By estopping investigation of these 
larger relations of economic activity, the classical 
economists turned a dignified division of Smith's 
system into, not only a dismal, but a dangerous, 
sectarianism. It became a class litany. As a 
program it was relentless selfishness. As a 
theory it was bigoted obscuration. Only persons 
futile enough to be convinced by such perver- 
sions could be surprised at the reaction which 
appeared in the whole scale of dissent, from the 
cautious inquiries by which John Stuart Mill 
first gave sign that he was beginning to see with 
his own eyes, to the vagaries of the most irre- 
sponsible anarchist. If the economists had culti- 
vated the whole philosophy of their teacher, 
instead of an abstracted section of it, much of 
the occupation of socialistic sectarians would 
have been gone. If the economists had not sup- 
pressed the truth on the one hand, there would 


have been less plausibility in the visions which 
the socialists are exploiting on the other. There 
are functional relationships in society which are 
neither fixed by economic self-interest alone nor 
prejudiced by the play of puerile speculation. A 
social philosophy more comprehensive than 
merely economic opportunism, is bound to make 
progress toward discovery and interpretation of 
these relations, and toward justification of social 
programs which aim to secure for each of the 
distinct social interests its due ratio of attention 
in the conduct of life. 

In connection with Chapter X, "Of Wage and 
Profit in the Different Employments of Labour 
and Stock," it should be pointed out that Smith 
makes more of the labor element in the so-called 
profits of some employments than has been 
explicit in many of the later economists. Thus 
in a typical case of small trade, he says: "The 
greater part of the apparent profit is, in this case 
too, real wages." ^^ Economic theory would have 
kept ofif another lea shore if it had adhered to the 
hypothesis that all legitimate income is essentially 
a wage, the hire of labor rendered. It would 
then have had a credible basis for criticism of all 
incomes in the degree in which they are dispro- 
portionate with services rendered by the persons 

" I, p. 1 1 6. 


drawing the income. The fact has been, how- 
ever, that, as a rule, the rent and interest ele- 
ments of income have been defended less on the 
ground of service performed by landlord or capi- 
talist than for one or more of several alleged 
reasons which are less convincing. To be sure, 
it is often easy to detect in these arguments more 
or less surreptitious recourse to the claim that the 
landlord or the capitalist is a laborer, and there- 
fore worthy of his hire. There is very seldom 
any sign on the part of theorists who smuggle in 
this appeal, that they are aware that, so far as the 
consideration is pertinent at all in a given case, 
it sanctions the income of the given capitalist or 
landlord, but it does not touch, one way or the 
other, the case of true economic interest or rent. 
This has been pointed out with something 
approaching finality by Bohm-Bawerk,^* but it is 
impossible to determine to what extent respon- 
sible economists even today have assimilated the 
perception that the equities of interest and rent, 
in the strict sense, are not illuminated in the 
slightest degree by proof that given types of capi- 
talists and landlords are entitled to wage. Not 
even Marxians who understand their teacher 
deny that the Astors and Rothschilds are entitled 
to a wage for every stroke of labor that they per- 

** Capital and Interest. 


form. Modern questions of distribution turn 
upon those factors of income which cannot by 
any jugglings of terms or stretchings of imagina- 
tion be accounted for as returns for services 

Chapter XI, "Of the Rent of Land," is even 
more than the chapters on wages and profits an 
account of what is ordinarily visible in trans- 
actions between the parties concerned — in this 
case landlord and tenant. As in the case of 
profits, there is no indication that the thought of 
examining the question why a landlord is entitled 
to rent at all had ever occurred to Smith. The 
relation of landlord and tenant, and the payment 
of rent by the latter to the former, apparently 
seemed to him hardly less a part of the neces- 
sary order of things than the relation of children 
to parents. In so far as the differences between 
Smith's analysis of rent and Ricardo's are details 
of economic technology, they are not pertinent to 
our purpose. When we make the same inquiry 
about Ricardo's relation to the problems of soci- 
ology which we are now making about Adam 
Smith, it will be proper to ask whether Ricardo 
was more or less conscious than Smith of the 
social factors, as distinguished from differences 
of fertility, which the phenomena of rent brought 
into question. 


The entire remainder of Book I is clear evi- 
dence of the essentially technological character 
of tb^ whole treatise. Pages 183-261, in particu- 
lar, contain material which would be entirely in 
place on the editorial pages of a financial or 
trade journal. These pages, with those that 
follow (261-73), are primarily valuable today as 
material for history of the development of that 
division of economic technology in which Ricardo 
may be said to have formulated the Newtonian 
laws. All through this technical discussion hints 
occur pointing to the extra- or semi-economic 
factors which have to be accounted and pro- 
vided for, even in a predominantly economic con- 
sideration of rent. None of these are sufficiently 
prominent, however, to demand further attention 
for our purpose. Smith himself states the 
general fact in these words : 

I shall conclude this very long chapter with observing 
that every improvement in the circumstances of the 
society tends either directly or indirectly to raise the real 
rent of land, to increase the real wealth of the landlord, 
his power of purchasing the labour, or the produce of the 
labour of the people." 

The difference in this connection between 
classical economics and economic liberalism of all 
types, to the extreme of Marxian socialism, is in 

"P. 261, Henry Georgeism in the yolk. 


a word that, both taking the above generaHzation 
to be true, the former maintains that there is no 
way to prevent the economic law from doing its 
perfect work ; the latter maintains that the artifi- 
cial arrangements of society have given to the 
landlord class a monopoly of the advantages that 
accrue from the workings of that economic law ; 
and that mature social intelligence and compe- 
tence must inevitably rearrange the institution 
of property in land so that rent will be more 
equitably distributed. The one declares that 
there is no social problem at this point ; the other 
declares that the social situation as respects rent 
is impossible, and that class struggle must grow 
more and more acute until the negation of 
democracy involved in our system of land-tenure 
is recognized, and the conflicting claims of 
persons to the equity which society arbitrates are 
settled so as to satisfy democratic standards of 

There could be no more clear-cut illustration 
of the facts that, in the first place, there are social 
problems in which the economic factor consti- 
tutes only one of the terms; and, in the second 
place, that the economic factor is not necessarily 
the decisive term. Rent is an economic phenome- 
non which would be present, like the power of 
falling water, regardless of property rights in the 


land or the stream. The rights that people shall 
accord to each other in appropriating rent or 
water-power must tend to reflect more and more 
people's valuations of one another, not their con- 
sideration merely of rent or of water-power. In 
this connection the social problem is: Rent being 
mi algebraically definable portion of the produce 
of land, how shall we discover the formulae of 
the relation of all the people to rentf This ques- 
tion opens up the whole realm of super-economic 
moral economy, or of sociology in the larger 

When Adam Smith's chapters on rent were 
written, the uneasiness in the American colonies 
was not taken seriously enough to bring even 
political democracy, as we now understand the 
phrase, into the reckonings of practical politics. 
An economic democracy which could call in ques- 
tion the time-honored caste distinction between 
the landlord and the landless was a possibility too 
remote to attract Smith's attention. The out- 
look of classical economics may accordingly be 
represented by this question : The general struc- 
ture of society as zve have it being final, what are 
the conditions zvhich such a society confronts in 
its attempts to increase material wealth? The 
outlook of progressive democracy may be repre- 
sented by the question: The general structure 


of society as we have it not being final , what are 
the conditions which an evolving society con- 
fronts in its attempts to clear the way for increase 
of all human values? Since the classical econo- 
mists started with the assumption that things are 
final which are not final, it is not at all surprising 
that, after they had satisfied themselves about the 
fact of rent and the measure of rent as actual 
economic phenomena, they should at the same 
time have felt satisfied that the formulas of rent 
must apply to the ownership of rent as a social 
phenomenon. But the phenomena of rent, like 
the phenomena of exhaustion of the soil, would 
be invariable in principle, whether a Conqueror 
owned every foot of the land, or Plantagenet 
feudalism prevailed, or nineteenth-century liberal- 
ism developed, or Marxian socialism took posses- 
sion. Who shall own the rent which accrues 
according to certain laws, regardless of the insti- 
.tutions of property, is a question as distinct from 
the fact and the amount and the formulas of rent, 
as the practical problem of an individual farmer, 
whether or not he will adopt scientific methods of 
cultivation, is distinct from the principles of 
deterioration which the agricultural chemist 

We repeat, therefore, the primary claim of 
this argument : that there is no proper incongruity 


between economic and sociological theory, and 
that sociological inquiry in no sense challenges the 
authority of economic technology, within the 
field of its proper competence. The deadening 
influence of classical economics was due to its 
failure to see that human beings and their asso- 
ciations, as well as their wealth-producing 
technique, are in process of evolution; and that 
this whole social process is a tribunal which must 
continually review the judgments recorded in 
parts or stages of the process. How does rent 
arise, and how is it distributed in a given type of 
society? are questions of pure economic technol- 
ogy, and no sociology can supersede the 
technology that discovers the positive answers to 
those questions. Ought the type of society which 
distributes rent in a certain way to be modified? 
is a question which is just as pertinent in its place 
as the question whether any medicine at all, and 
if so what medicine, should be prescribed for a 
given patient. The question of desirable social 
modification can no more be answered solely by 
the same technology which formulates the prin- 
ciples of rent, than the questions of practical 
medicine can be answered solely by anatomy or 
analytical chemistry. 

The classical economics was industrial posi- 
tivism, but social fatalism. Human interests 


could not permanently consent to be limited by 
that type of impertinence. Human interests 
promise the prevalence of some sort of a theory 
of constructivism, not merely for one of their 
elements, but for all combined. Classical 
economics virtually proclaimed the finality of a 
social regime in which the maximum production 
of wealth should be the dominant purpose, and 
the maximum development of persons should be 
only a secondary consideration. All the social 
philosophies which take issue, more or less 
directly and consciously, with this central conten- 
tion, virtually deny that wealth can be made the 
criterion of life, and assert that the ultimate 
standard of life must be found in people rather 
than in their material conditions. This is really 
reasserting Adam Smith's belief that the funda- 
mental philosophy of life is moral, and that 
economic technique is merely incidental to the 
running of machinery which is always at last 
subject as a whole to the disposition of laws 
which lie outside of its own operation. We say 
again that the main movement on the theoretical 
side of present social problems is toward atten- 
tion to the larger incidence of social relations 
than the immediate successors of Adam Smith 

Before passing from this subject, it is necessary 


to quote one more passage, as a sample of the 
indorsement which Adam Smith's unsuspicious 
study of economics furnishes to present social 
agitation. It is at the same time an index 
of the attitude which he would have taken if he 
had lived until his presumption of a statical 
condition of social structure had been destroyed 
by the actual changes that have occurred mean- 
while. He says : 

The whole annual produce of the land and labour of 
every country, or what comes to the same thing, the whole 
price of that annual produce, naturally divides itself, it 
has already been observed, into three parts; the rent of 
land, the wages of labour, and the profits of stock; and 
constitutes a revenue to three different orders of people ; 
to those who live by rent; to those who live by wages, and 
to those who live by profit. These are the three great, 
original, and constituent orders of every civilised society, 
from whose revenue that of every other order is ultimately 

** I italicize this sentence, not because there can be profit- 
able dissent from it as a statement of historic fact, but because 
Smith's present tense is apparently that of universal time. It 
declares what, in his opinion, is, was, and shall be. But it by 
no means follows that his mind would have been impenetrable 
by the force of subsequent events. There would certainly have 
arisen, sooner or later, a conflict between the implications of 
his labor theory of the origin of wealth, and his assumption 
of the permanence of the existing type of social structure. I 
cannot imagine a man of his breadth and judicial poise persist- 
ing in his view of the finality of a given social structure, if all 
the light had been shed upon that view which intervening 


The interest of the first of these three great orders, it 
appears from what has just now been said, is strictly and 
inseparably connected with the general interest of the so- 
ciety. Whatever either promotes or obstructs the one, 
necessarily promotes or obstructs the other. When the 
public deliberates concerning any regulation of commerce 
or police, the proprietors of land never can mislead it, 
with a view to promote the interest of their own particu- 
lar order; at least if they have any tolerable knowledge 
of that interest. They are, indeed, too often defective in 
this tolerable knowledge. They are then only one of the 
three orders whose revenue costs them neither labour nor 
care, hut comes to them, as it were, of its own accord, 
and independent of any plan or project of their own. 
That indolence, which is the natural effect of the ease and 
security of their situation, renders them too often not 
only ignorant but incapable of that application of mind 
which is necessary in order to foresee and understand the 
consequences of any public regulation." 

We must remember that the rack-renting 
absentee landlord had not yet been examined 

events have generated. Even the hints in the paragraph that 
follows contain indications that he was partially aware of 
possible anomalies in the workings of our institutions of 
landed property. It is not at all difficult to believe that if he 
had considered all the anomalies which are common knowledge 
of all who have made fairly thorough use of social informa- 
tion today, he might have been among those who say that 
private property in land justifies itself just so long, and so 
far, as it proves itself on the whole more serviceable to 
society at large than any modifications that could be intro- 
duced. (Cf. p. 129, above.) 
« P. 263. 


under the microscope. The country gentleman 
whom Adam Smith knew had probably never 
furnished medical practice a case of nervous 
prostration as a result of excessive attention to 
duty, either as head-farmer of the estate, or as 
magistrate, or as member of Parliament. He 
was lazy enough at best, but as a type he always 
represented a certain social service at worst. He 
did not merely live a life of luxury and display 
and riot in London, while people who worked in 
Ireland stinted themselves to support his extrava- 
gance by their tribute. It is inconceivable that 
Adam Smith could have continued to regard 
traditional laws of landed property as beyond the 
region of debate, after the corollaries of those 
laws had worked themselves out to the pitch of 
absurdity which the extreme anomalies of 
absentee landlordism have meanwhile exhibited. 
Whatever Americans may think about the politi- 
cal constitution of Germany, there is certainly 
nothing visionary about her economics. Germany 
has incorporated with her system of taxation so 
nearly a system of social appropriation of the 
rent element in the returns from land, that its 
financial system is virtually a categorical denial 
of the equity of tolerating a private income in the 
form of rent in the strict sense. The lengths to 
which Germany has gone in claiming rent for the 


state, as a matter of public policy, are more obsti- 
nate evidence than all the abstract arguments, that 
the classical assumptions in this connection were 
premature generalizations. 

A word is also in order with reference to 
Adam Smith's allusion, at this same point,^^ to 
the fact that, while the interests of the order that 
lives by wages are also intimately dependent upon 
the interests of society in general, the members 
of that order do not, as a rule, know^ how to 
represent their own interests. 

In the pubilc deliberations, therefore, [the laborer's] 
voice is little heard and less regarded, except upon 
some particular occasions, when his clamour is animated, 
set on, and supported by his employers, not for his, but 
their own, particular purposes. 

Adam Smith was not so fatuous as to assume 
that, if the laborer should one day rouse himself 
from this numb acquiescence, or break away from 
his stupid tutelage, he would be defying the laws 
of political economy. In his pedantic scoldings 
of modern liberalism, Herbert Spencer exploited 
precisely that futile presumption. That which 
Smith realized with regret, the defective social 
activity of the wage-earner in contending for his 
own economic interests, seemed to Spencer a 
providential dispensation. The liberalism which 
" P. 263. 


he bewailed and belabored ^^ was essentially the 
very activity of the laboring man in his own 
interest, the absence of which Smith lamented. 
It is to be expected that while the masses of 
wage-earners are getting their education they 
will repeat many of the same errors which other 
social classes have committed while they were 
going through the same process. Democracy has 
gone so far, however, in setting free the physical 
and mental and moral energies of wage-earners 
that they must necessarily exert an increasing 
ratio of power in molding social institutions 
according to the dictates of their interests. In 
future litigation of class interests, labor is bound 
to be better represented than in the past. This 
means that, whether we will or no, the social 
theorems which have seemed to cover the ground, 
from the standpoint of property interests, are 
bound to be revised so as to admit more accurate 
calculation of the previously silent majority. 
This not only must be, but should be. It is not 
a symptom of social demoralization, but a sign 
of healthy social progress. Speaking of those 
who live by profit. Smith observes : ^^ 

The proposal of any new law or regulation of com- 
merce which comes from this order, ought always to be 
listened to with great precaution, and ought never to be 

*• The Man vs. the State. *» P. 265. 


adopted till after having been long and carefully examined, 
not only with the most scrupulous but with the most 
suspicious attention. It comes from an order of men 
whose interest is never exactly the same with that of the 
public, who have generally an interest to deceive and even 
to oppress the public, and who accordingly have, upon 
many occasions, both deceived and oppressed it. 

The meaning of the laissez-faire clause in 
classical economics was in effect: "Let capital- 
istic interests alone in deciding for themselves 
what laws shall be on the statute-books." We 
have had a period of excessive liberty of capital 
to exercise the predominant influence in making 
the laws that affected its activities. We are 
coming into an era in which non-capitalistic 
interests are demanding their share of hearing 
upon the same class of laws. There can be little 
doubt that, whatever he might have thought about 
specific traits and details of this modern develop- 
ment, if he had lived to see it, Adam Smith 
would have pronounced it in principle a tendency 
in the direction of more just social balance. 



Before continuing the argument, we should 
take our bearings by means of certain plain way- 
marks, viz. : 

First: The divisions of our subject-matter 
correspond with those in The Wealth of Nations. 

Second : Those divisions were necessarily 

Third : It was impossible for Adam Smith to 
exclude consideration of capital from Book I of 
The Wealth of Nations, although the subject of 
the book was primarily labor. 

Fourth: It was impossible for Adam Smith 
to exclude consideration of labor from Book II, 
although the subject of the book was primarily 

Fifth: In following Smith's analysis of the 
relations of labor to economic phenomena in gen- 
eral, we encounter at every step relations of both 
to wider moral phenomena. 

Sixth : We shall have a like experience in 
following his analysis of the relations of capital 
to the economic process. 

Seventh: This situation illustrates a wide 


generalization, which is at the same time a socio- 
logical axiom; viz.: None of the activities of 
men occur in isolation from one another; they 
form an interlocking process; they are therefore 
factors at last in the whole system of moral* 
cause and effect which presents the problems of 

Eighth : The consideration of economic 
activities from the sociological point of view is 
not therefore a matter of choice, if we admit the 
obligation to learn the whole truth about 
economic facts. The more-than-economic in the 
relations is just as real an element in economic 
activities as the simply-economic. 

Ninth : In brief, the economic question is : To 
what extent is it possible to discover relations of 
cause and effect so far as they terminate in 
wealth ? 

Tenth : The corresponding sociological ques- 
tion is : To what extent is it possible to discover 
relations of cause and effect so far as they 
terminate in persons ? 

Eleventh : Since wealth can have no meaning 
to our minds outside of relations to persons, it 
follows that all formulas of wealth have the 
logical rank of partial products, or trial divisors, 
incidental to ultimate calculation of formulas of 


Twelfth: Consequently, when an economic 
inquiry is started, the only alternatives are, first, 
to arrest the process of inquiry arbitrarily with 
the partial products or trial divisors reached by 
economic analysis ; or, second, to press the inquiry 
as far as it can be carried into the whole moral 
situation which sociological methods try to 

Our argument, therefore, continues to indi- 
cate the necessary relationships between Smith's 
economic analysis and further analysis of causes 
and effects throughout the whole range of human 

The second book of The Wealth of Nations, 
entitled "Of the Nature, Accumulation, and Em- 
ployment of Stock," opens with a paragraph as 
anachronistic, yet essentially as true, as for 
instance Raphael's "School of Athens." In 
order to indicate the substance of Smith's views 
on this subject, we quote the opening paragraph 
and summarize the remainder of the introduc- 

In that rude state of society in which there is no 
division of labour, in which exchanges are seldom made, 
and in which every man provides everything for himself, 
it is not necessary that any stock should be accumulated 
or stored up before hand, in order to carry on the busi- 
ness of the society. Every man endeavours to supply by 


his own industry his own occasional wants as they occur. 
When he is hungry, he goes to the forest to hunt; when 
his coat is worn out, he clothes himself with the skin of 
the first animal he kills; and when his hut begins to go to 
ruin, he repairs it as well as he can, with the trees and 
the turf that are nearest it. 

But when the division of labour has once been thor- 
oughly introduced, the produce of a man's own labour 
can supply but a very small part of his occasional wants. 
The far greater part of them are supplied by ... . pur- 
chase But this purchase cannot be made till such 

time as the produce of his own labour has not only been 
completed but sold. A stock of goods of different kinds, 
therefore, must be stored up somewhere sufficient to 
maintain him. .... As the accumulation of stock must, 
in the nature of the case, be previous to the division of 
labour, so labour can be more and more subdivided in 
proportion only as stock is previously more and more 

accumulated As the division of labour advances, 

therefore, in order to give constant employment to an 
equal number of workmen, an equal stock of provisions, 
and a greater stock of materials and tools than what 
would have been necessary in a ruder state of things, 
must be accumulated before hand. But the number of 
workmen in every branch of business generally increases 
with the division of labour in that branch, or rather it is 
the increase of their number which enables them to class 
and subdivide themselves in this manner. 

As the accumulation of stock is previously necessary 
for carrying on this great improvement in the productive 
powers of labour, so that accumulation naturally leads 
to this improvement. The person who employs his 
stock in maintaining labour, necessarily wishes to em- 


ploy it in such a manner as to produce as great a quan- 
tity of work as possible. He endeavours, therefore, both 
to make among his workmen the most proper distribution 
of employment, and to furnish them with the best ma- 
chines which he can either invent or afford to pur- 
chase. His abilities in both these respects are generally 
in proportion to the extent of his stock, or to the number 
of people whom it can employ} The quantity of industry, 
therefore, not only increases in every country with the 
increase of the stock which employs it, but in consequence 
of that increase, the same quantity of industry produces 
a much greater quantity of work.'^ ^ 

Book II consists of one hundred and nine 
pages, and is devoted to amplification of these 
propositions. Again we must point out that it is 
no part of our task to inquire into the correct- 
ness or adequacy of the purely economic formulas 
or implications. This work has been done by the 
economists themselves. It would be worse than 
waste to attempt to do independently the work of 
criticizing Smith, which the economists have vir- 
tually been carrying on in co-operation for more 
than a century. So far as we want the pure 
economics of capital, rather than its sociology, 
we must go for instruction to the output of 
economic analysis down to the present time.^ 

* Italics mine. " I, pp. 275, 276. 

'Thus the literature of the subject is brought down to a 
late date by Bohm-Bawerk in Capital and Interest and The 
Positive Theory of Capital. The same author has recently 


Our concern, however, is not with the merits or 
defects of Smith's views as parts of a system 
of private or pubHc accounting. Our inquiry 
deals with the relation of his views about "stock," 
as he phrased it, to the whole social process, and 
especially to the development of a theory of the 
whole social process. In particular, we have to 
ask whether Smith's theory of capital did, or left 
undone, anything that an adequate theory of the 
whole social process must correct. Or did his 
treatment of the subject furnish occasion for 
his successors to act as though his theory was 
more comprehensive and exhaustive than it was, 
or than he presumed it to be ? 

At the outset, we must take into consideration 
two or three things similar to those which have 
already been referred to in connection with rent. 
In the first place. Smith had no more thought 
that the capitalists as such could ever be called 
upon to show cause why they should exist, than 
he had that it was necessary to entertain any such 
vain speculation about landlords. The reason, 
in either case, was that to Smith's mind the class 
in question performed an indispensable social 
function, although that particular form of con- 
returned to the subject: vide Quar. Jour, of Econ., Vol. XXI, 
pp. 121 ; 247-82. Cf. Fisher, The Nature of Capital and 
Income (1906), pp. 53 ff., et passim. 


cept or of expression may not be attributed to 
him. More than this, Smith seemed to have no 
doubt that landlords and capitalists were, with 
tolerable regularity, functioning according to 
type. The sentence which I have italicized above * 
probably does not directly assert this, but a part 
of the ambiguity of the sentence is apparently 
due to Smith's assumption that status and fitness, 
or function, have a sort of foreordained harmony 
in the different industrial orders. By "abilities" 
he probably did not mean talents, but rather scope 
for the exercise of talent. That is, his main propo- 
sition was that the amount of stock, as a rule, 
determines the extent to which division of labor 
and possession of improved machinery are pos- 
sible. This is a rouglily correct economic prin- 
ciple, and we could raise no questions of detail 
concerning that phase of it which have not 
received ample attention from the economists. 
One cannot avoid suspecting, however, that a 
little of the other thought was also in Smith's 
mind, viz., that the man who has the stock is the 
man best capable of organizing the labor and 
selecting or inventing the machinery; that is, to 
use sociological technicalities, he is ex officio, so 
to speak, functioning according to the implica- 
tions of his status, and his income is a fair reward 
for his work. Whether Smith really meant this 
*P. 159. 


or not, and whether or not it was generally true 
in his time, we have meanwhile witnessed develop- 
ments in which the exceptions to the rule are 
certainly more frequent than he supposed, and 
those exceptions must today be accounted for in 
formulas of the social sanctions of capital that 
can successfully run the gauntlet of criticism. 
That is, we perceive today, , to an extent that 
Adam Smith did not, first, that the division of 
the ownership of capital among individuals is a 
resultant of the coworking of economic and of 
conventional forces, not the product of either 
alone; second, that, under the operation of our 
conventionally adapted economic system, there 
are already enough contrasts between large 
incomes from capital and small compensating 
service to authorize inquiries whether there are 
faults in the conventional factors of our property 
system; whether our theories of the rights of 
property are on the final basis ; whether the artifi- 
cial elements in our property systems are sus- 
ceptible of modifications which would tend toward 
closer correspondence between service and 

In other words, the problems which Smith 
took up were problems of industrial accounting, 
viz. : What are the mathematics of the factors 
in national economic systems as they are at 


present geared together? He saw no occasion 
for opening the question whether the conven- 
tional fashions of gearing the economic factors 
were susceptible of improvement. This latter is 
the social question in a nutshell, and it has been 
the most effective stimulus making for the 
development of sociological science. 

A change has occurred in this connection since 
Smith wrote. Because the conventional factors 
in our economic institutions have come to be 
social and sociological problems, economists as 
technical experts, and all other theorists, have 
been under pressure to accept one or the other 
horn of a dilemma which had not presented itself 
to Adam Smith. The alternative runs back to 
Smith's account of "stock." ^ 

He says: 

When the stock which a man possesses is no more 
than sufficient to maintain him for a few days or a few 
weeks, he seldom thinks of deriving any revenue from it. 
He consumes it as sparingly as he can, and endeavours by 
his labour to acquire something which may supply its 
place before it be consumed altogether. His revenue is, 
in this case, derived from his labour only. This is the 
state of the greater part of the labouring poor in all 

But when he possesses stock sufficient to maintain 
him for months or years, he naturally endeavours to derive 

= Pp. 276, 277. 


revenue from the greater part of it; reserving only so 
much for his immediate consumption as may maintain 
him till this revenue begins to come in. His whole stock, 
therefore, is distinguished into two parts. That part 
which, he expects, is to afford him this revenue, is called 
his capital. The other is that which supplied his immedi- 
ate consumption; and which consists either, first, in that 
portion of his whole stock which was originally reserved 
for this purpose ; or, secondly, in his revenue, from what- 
ever source derived, as it gradually comes in; or, thirdly, 
in such things as had been purchased by either of these 
in former years, and which are not yet entirely consumed; 
such as a stock of clothes, household furniture, and the 

The dilemma concealed in these propositions 
is the following: When the principles on which 
revenue from stock rests come to divide social 
classes, shall economic theory abide by this divi- 
sion of stock into that which is and that which is 
not ''capital," and shall economic theory accept 
the burden of proof that private property in 
capital and all that goes with it is just as unques- 
tionable as private property in the portion of 
stock which is not capital ; or shall economic 
theory evade the issue by refusing to recognize 
the validity of the distinction which Smith 
proposed ? 

At first glance it may seem to be a mere choice 
between words, whether we call a workman's 

' Italics mine. 


clothes and furniture ''capital" or not. It may 
even appear to be a mark of superior insight to 
decide that a carpenter's hammer and saw and 
plane are capital, as truly as the Rothschilds' 
banking funds ; because in the end the tools help 
the carpenter to get a revenue just as truly as the 
gold helps the banker to his income. If, however, 
we discover that marked differences appear in 
the relative amounts of conventionality or the 
relative amounts of useful work concerned in 
getting an income from one sort of stock and 
another, we are aware that very serious differ- 
ences may be involved in the contrasts between 
the two kinds of stock in their relation to ultimate 
questions of income. Since Smith's time, events 
have thrust the reality of a difference in social 
effect, as well as in social origin, between the two 
divisions of stock into prominence. Whether 
five dollars' worth of clothes on a workman's 
back, and five hundred thousand dollars' worth of 
machinery under the management of a single 
owner, and five hundred million dollars' worth of 
securities manipulated by a small group of men 
who have a purely absentee relationship to the 
industries that give the securities a value — 
whether these three blocks of stock are abstractly 
of the same nature or not, concretely they are not 
of the same nature. They have effects as 


diverse as the difference between men who must 
go on foot, and those who go in carriages, and 
those who have private railroad trains. 

The question which Smith discussed was vir- 
tually: What are the reasons for the scale of 
remuneration paid to persons who go on foot, to 
those who use carriages, and to those who use 
private railroad trains, efficiency in covering dis- 
tance being the sole criterion on which the scale is 
based ? The question which has meanwhile come 
to the front is: What other factors does justice 
require in the standard of compensation, in view 
of the fact that a conventional distribution of 
means of locomotion has introduced artificial 
advantages and disadvantages between the com- 
petitors? To assert that all stock is capital may 
be in accordance with certain essential facts. This 
truth may, however, be so asserted as virtually 
either to beg the social question or to rule it out 
of court, although it has come to be an inevitable 
question since Adam Smith's time. 

Whatever might have been his position if he 
had lived till today. Smith's actually expressed 
views on the differences between the two kinds 
of stock do not tend to confirm the contention of 
those who virtually hold that the technology of 
production is the sole guide to the equity of dis- 
tribution. They tend rather to sustain the con- 


tention of those who hold that the organization 
of production at a given time may give an artifi- 
cial prominence to some of the persons v^ho 
control production, and so may not be a fair 
index of the equities of distribution. The case 
between these two contentions should be tried in 
connection with a later stage in the development 
of economic theory. It is enough at this point to 
have indicated by this particular instance how far 
economic theory at Smith's time failed to cover 
the ground of present social problems. 

There is no proposition in pure economics 
which might not be made a point of departure 
from which to explore the whole social process. 
Our present search, however, is not for oppor- 
tunities to show how economic facts are related 
to other social facts, but to discover, first, the 
extent to which Adam Smith expressly correlated 
economic facts with other social activities, and, 
second, how his correlations or failures to corre- 
late left problems in sociological interpretation 
which must be solved before social theory can be 
stable. Having pointed out that Smith did not 
inquire into the sociology of private property in 
capital, but merely analyzed its technology, all 
that remains to be said about Book II is merely 

For instance, we are reminded that the ^*law 


of diminishing returns" had not yet been reduced 
to precision, by such a proposition as the follow- 

The produce of land, mines, and fisheries, when their 
natural fertility is equal, is in proportion to the extent 
and proper application of the capitals employed about 
them. When the capitals are equal, and equally well ap- 
plied, it is in proportion to their natural fertility.^ 

This is, of course, a purely economic generali- 
zation, and we note it simply as an index of the 
stage of theory to which it belongs. In the same 
connection, however, and without apparent 
thought that the observation leads beyond the 
boundaries of economic technology. Smith notices 
that the degree of public security is a variant of 
the law of capitalization.^ Again, referring to 
luxurious consumption by the idle. Smith ven- 
tures a generalization which is approximately 
true from the standpoint of capitalization, but 
not equally true as a sociological proposition, viz. : 

.... it promotes prodigality, increases expence in con- 
sumption without increasing production, or establishing 
any permanent fund for supporting that expence and is 
in every respect [sic'\ hurtful to the society.® 

It is hardly necessary to urge that "in every 
respect" is an exaggeration. A court ball, or a 
coronation celebration, is rated by nearly the 

' Pp. 283, 284. « P. 284. • p. 295. 


whole population of the capital, and perhaps of 
the kingdom, as a promoter of general prosperity. 
This may be an extremely loose judgment, but it 
contains elements which are as valid in them- 
selves as the contradictory judgment just quoted. 
There are circumstances when prodigal expendi- 
ture by the rich may be a remedy preferable to 
the disease. Circulating accumulated wealth 
among honest bread-winners, even if their trades 
are not of the most necessary type, may diminish 
possible capital for the moment, but it may keep 
a large contingent from lapsing permanently into 

The wage-fund theory appears also in embryo 
in Book II; e. g., i, p. 296. 

Much more important than either of these 
items is an innocent, but pervertible, paragraph 
in the third chapter ; viz. : 

The proportion, therefore, between the productive and 
the unproductive hands, depends very much in every coun- 
try upon the proportion between that part of the annual 
produce, which, as soon as it comes either from the 
ground or from the hands of the productive labourers, is 
destined for replacing a capital, and that which is destined 
for constituting a revenue, either as rent, or as profit. 
This proportion is very different in rich from what it is 
in poor countries." 

However wide the leap may be in logic, in 

'"I. pp. 338, 339. 


practice the transition is easy from this percep- 
tion of fact to an emphasis on the fact which con- 
verts it into a rule of Hfe and a goal of life. It is 
highly improbable that Smith himself would have 
tolerated the pagan conception that the ranking 
moral law is, Capitalize ! The economic theorists 
and theories and practices that followed him 
became perverts to that pseudo-morality to a 
degree which has seriously embarrassed the corre- 
lation of economics with moral principles. Smith 
is in no way responsible for this, except as 
the man who draws attention to a phenomenon 
may be the guiltless cause of unfortunate action 
with reference to the phenomenon. In this case 
the unfortunate action has been excessive honor 
to the policy of capitalization. 

It is unnecessary to argue the point, for, say 
from the beginning of the twentieth century, 
there has been a general tendency among econo- 
mists the world over to admit that economic 
theory has overemphasized production and neg- 
lected the theory of consumption. In fact, our 
social philosophy and our working moral stand- 
ards are seriously distorted by the impression 
that there is superior merit in the capitalization of 
wealth, irrespective of the demand for consump- 
tion in the society that has produced the wealth. 
Capitalistic theories tend to interpret consump- 


tion merely as a means to production. This is 
the necessary and proper perspective in a pure 
theory of economic technique. At the same time 
it is ocular proof that a theory of economic 
technique is merely a relative clause in a philoso- 
phy of human affairs. In a rational system of 
which the center is persons, not things, production 
can have no complete meaning except as a pur- 
veyor to consumption. Production is the lower 
virtue, and consumption is the higher. To capi- 
talize wealth in order to produce more wealth, 
when consumption of the same wealth would 
produce better people, is prostitution. From the 
standpoint of sociology the history of nineteenth- 
century economics, both theoretical and applied, 
has yet to be interpreted with just attention to 
this distinction. From Adam Smith to Mill, 
the emphasis of the economists lent itself more 
and more to deepening the impression that capi- 
talization is the first duty of the man who can get 
hold of anything to capitalize; and that, like the 
formula "corban" with the older Pharisees, the 
plea of "the interests of capital" absolves the 
devotees of production from responsibility to the 
claims of humanity. 

Note should be taken also that, in Smith's 
analysis, there are premonitions of the explana- 
tion of returns to capital which we now associate 


chiefly with the name of Senior, and which has 
come to be known as the "reward-for-akstinence 
theory." Inasmuch as the relations concerned 
are still in debate, it is not remarkable that Smith 
hardly thought of them as debatable. One is 
provoked to query whether Smith could have 
reconciled this part of his views with the doctrine 
of labor as the source of wealth already discussed. 
Possibly he would have answered that the two 
dicta applied to different steps in the economic 
process, and that both might be true in their 
proper place. Indeed, it would be unfair to Smith 
to assume that he had offered an alternative 
explanation of the same thing. When the analy- 
sis of returns from capital is pursued to the last 
detail, the relation of labor to these returns is 
more evident than Smith made it in this connec- 
tion; but the reason is that he is not now talking 
primarily of wealth, but of capital. He is also 
merely putting into words very commonplace 
facts. He is not probing far below the surface 
for explanations. He expresses the facts in 
terms of ''parsimony" : 

Capitals are increased by parsimony, and diminished 

by prodigality and misconduct Parsimony, and not 

industry, is the immediate cause of the increase of capital. 
Industry, indeed, provides the subject which parsimony 
accumulates. But whatever industry might acquire, if 


parsimony did not save and store up, the capital would 
never be the greater That portion of his rev- 
enue which a rich man annually spends, is in most cases 
consumed by idle guests, and menial servants, who leave 
nothing behind them in return for their consumption." 

In so far as these propositions are to be taken 
as generalizations of the process of increasing 
capital, the term "parsimony" has to be under- 
stood with a sHding scale of meaning — from the 
most pinching literalness at the one extreme, to 
exuberant metaphor at the other. When the 
multimillionaire converts the surplus dividends, 
which he could not consume if he would, into 
capital to produce more dividends, his proced- 
ure would hardly be termed "parsimony" outside 
the Pickwick Club. The extravagance of this 
metaphor in the case of ordinary commercial 
capital has been amply exposed by multitudes of 
critics of Senior. It is worth referring to here, 
however, as one of the incipient forms of a pre- 
judice which presently became a considerable 
obstruction to dispassionate analysis of the phe- 
nomena of capitalistic revenue. We shall find 
the best conditions for an accounting between 
economics and sociology on this subject when we 
come to later phases of the social problem. 

The remainder of the chapter from which 

"I, pp. 342, 343. 


the last quotations are taken is accelerated motion 
toward apotheosis of capitalization. It is not 
fallacious. It is in substance profoundly wise. 
It is, however, merely the theory of one section 
of prudence. It simply does not raise the ques- 
tion of adjustment between the interests of capi- 
tal and the interests of men. It encourages the 
inference that whatever makes for the interests 
of capital ipso facto makes for the interests of 
people. The mischievous force of this inference 
is far from spent in the beliefs and practices of 
society, and it is a principal task of sociology to 
bring the truth into larger perspective. 

In the fourth chapter of Book II Smith's 
frank dissection of economic reality has an efifect 
in the opposite direction from that just noted. 
Since the justice of interest, dividends, or profits 
has been systematically challenged by the social- 
ists, there has been a decided tendency among the 
economists either directly to affirm or covertly to 
assume some form of labor title as the justifica- 
tion of all revenue from capital. This plea not 
only finds no support in The Wealth of Nations, 
but its author bluntly blurts out his perception 
that revenue in the form of interest is not a 
compensation for the owner's work, but a 
compensation for his idleness. He says: 


The stock which is lent at interest is always considered 

as a capital by the lender The borrower may use 

it either as a capital, or as a stock received for immediate 

consumption The stock which is lent at interest is, 

no doubt, occasionally employed in both these ways, but 
in the former much more frequently than in the latter. 
.... The only people to whom stock is commonly lent, 
without their being expected to make any very profitable 
use of it, are country gentlemen who borrow upon mort- 

A capital lent at interest may, in this manner, be con- 
sidered as an assignment from the lender to the borrower 
of a considerable portion of the annual produce; upon 
condition that the borrower in return shall, during the 
continuance of the loan, annually assign to the lender 
a smaller portion, called the interest; and at the end of it, 
a portion equally considerable with that which had origi- 
nally been assigned to him, called the repayment 

In proportion as that share of the annual produce which 
.... is destined for replacing a capital, increases in any 
country, what is called the monied interest naturally 
increases with it. The increase of those particular capitals 
from which the owners wish to derive a revenue, without 
being at the trouble of employing them themselves^ natur- 
ally accompanies the general increase of capitals; or, in 
other words, as the stock increases, the quantity of 
stock to be lent at interest grows gradually greater and 

The expression italicized is repeated on page 
364. The thought had evidently not occurred to 
Adam Smith that the lender of stock had a 

" Italics mine. " Pp. 356-59. 


claim, in that capacity, to be treated as a worker. 
It had never entered his head to doubt that the 
lender was entitled to his interest, but he rested 
the right on the naive position stated on pages 
362, 363, viz. : "As something can everywhere be 
made by the use of money, something ought every- 
where to be paid for the use of it." If financial 
transactions had grown no more complicated 
than they were when that sentence was written, 
there would be a minimum of impulse to chal- 
lenge such plausible fairness. But today opera- 
tions, which are as different from furnishing stock 
to a user as a stone is from bread, shelter them- 
selves under the sanction of the general claim of 
capital to interest. The nature of that claim calls 
for analysis. The problem of making the analysis 
is a cardinal task of sociology. The economic 
factors in the problem are deceptive until they 
are reduced to the denominator of personal 
values and personal service. When we apply 
this test, we shall prove that our ideas about the 
basis of present legal claims to income from capi- 
tal must sooner or later undergo drastic recon- 

In Chapter V of Book II Smith discusses 
"The Different Employment of Capitals." The 
general thesis is : 

Though all capitals are destined for the maintenance 


of productive labour only, yet the quantity of that labour, 
which equal capitals are capable of putting into motion, 
varies extremely according to the diversity of their em- 
ployment, as does likewise the value which that employ- 
ment adds to the annual produce of the land and labour 
of the country." 

Then Smith distinguishes four ways in which 
capital may be employed ; viz. : first, "in procur- 
ing the rude produce annually required for the 
use and consumption of the society;" second, 
"in manufacturing and preparing that rude prod- 
uce for immediate use and consumption;" third, 
"in transporting either the rude or manufactured 
produce from the places where they abound to 
those where they are wanted;" fourth, "in 
dividing particular portions of either into such 
small parcels as suit the occasional demands of 
those who want them." "It is difficult to con- 
ceive," he adds, "that a capital should be employed 
in any way which may not be classed under some 
one or other of these four." 

It is obvious that this fourfold classification 
of capital is primarily economico-technological, 
and only remotely social. The discussion which 
follows of the relative value to the commonwealth 
of the different ways of employing capital has 
significance for sociology simply in so far as it 

" P. 365. 


tends to determine a formula for the economic 
factor in situations in which alternative uses of 
capital raise questions of social utility in the 
large. The discussion does not go far enough 
to approach the questions of adaptation which 
present themselves in twentieth-century com- 
munities, except as it points out certain generic 
distinctions. This by no means ignores the 
value even of this preliminary analysis. It con- 
tains homely wisdom which is not likely to be 
outgrown by the most sophisticated social science. 
It is, nevertheless, the wisdom of the market, not 
of the forum. The sterile generality of the dis- 
cussion as a whole may be indicated by the 
following passage, which, at the very moment 
when the words were printed, events were rapidly 
turning into one of the most foolish prophecies 
on record: 

It has been the principal cause of the rapid progress 
of our American colonies towards wealth and greatness, 
that almost their whole capitals have hitherto been em- 
ployed in agriculture. They have no manufactures, those 
household and coarser manufactures excepted, which 
necessarily accompany the progress of agriculture, and 
which are the work of the women and children in every 
private family. The greater part both of the exporta- 
tion and coasting trade of America, is carried on by the 
capitals of merchants who reside in Great Britain. Even 
the stores and warehouses from which goods are retailed 


in some provinces, particularly in Virginia and Maryland, 
belong many of them to merchants who reside in the 
mother country, and afford one of the few instances of 
the retail trade of a society being carried on by the capi- 
tals of those who are not resident members of it. Were 
the Americans, either by combination or by any other sort 
of violence, to stop the importation of European manu- 
factures, and, by thus giving a monopoly to such of th^ir 
own countrymen as could manufacture the like goods, 
divert any considerable part of their capital into this em- 
ployment, they would retard instead of accelerating the 
further increase in the value of their annual produce, and 
would obstruct instead of promoting the progress of 
their country towards real wealth and greatness. This 
would be still more the case, were they to attempt, in 
the same manner, to monopolize to themselves their whole 
exportation trade.^® 

It is not finical nor hypercritical to abstract 
from this chapter the casual sentence : "But the 
great object of the political economy of every 
country, is to increase the riches and power of 
that country." ^^ We need not comment upon it 
at length. It is merely a confession of the strictly 
technological character of the discipline so desig- 
nated. It is incidentally a proof that the modern 
economists who want to give their science 
a different scope have broken with the 
tradition which The Wealth of Nations 
established. Some of them are tending toward 

" Pp. 272, 373- " P. 378. 


readjustment with the fundamental moral philos- 
ophy of which The Wealth of Nations was a 
specialization; others are tending toward spe- 
cialization of a different sort, as, for instance, 
on the one hand, the theory of taxation, or finance, 
or currency, or banking, or transportation; or, 
on the other hand, the converting of economics 
into a psychology of economic valuations. This 
readjustment of the perspective of economic 
science cannot be complete until it brings 
economic activities into focus as merely one of 
the interdependent factors of the evolving pur- 
poses of persons. 


Book III of The Wealth of Nations treats of 
"The Different Progress of Opulence in Dif- 
ferent Nations," More evidently than in any 
earlier section of The Wealth of Nations, the 
second of the two elements of the author's method 
now appears, the opposite tendencies of which 
were never fairly brought to light till the time of 
Cliffe Leslie. These are the deductive and the 
historical methods. Neither of these two 
methods was developed to its extreme results. 
Neither was put in the form of a distinct thesis 
in methodology. There could consequently have 
been no formal doctrine of the relations between 
them. Both were mobilized for Smith's pur- 
poses, and each was worked out by Smith's suc- 
cessors as a methodology which implied 
precedence over the other. Perhaps it is easy to 
overestimate the credit due to Smith for the 
balance which his own thinking maintained 
between the two methods. Perhaps the very fact 
that each was semi-defined, semi-conscious, in h^s 
own mind, detracts from his individual merit 


for the resulting sanity of his thinking. The 
fact remains, however, that, while Smith's analy- 
sis compares with the work of later economists, 
according to either program, merely as a begin- 
ning compares with a relatively finished product, 
yet it also appears in the same comparison like a 
great architectural design in contrast with elabo- 
rately finished parts of a structure not yet 
assembled in a completed building. 

In other words, the deductive and the histori- 
cal methods were not alternatives in Smith's sys- 
tem. They were partners. The historical or 
inductive method was appealed to so frankly that 
no one who goes back to Smith as a path-maker 
in economics can consistently disparage the his- 
torical factor of the method which he used. The 
deductive method was employed with equal 
frankness, but in the general plan of his argu- 
ment the interdependence of the inductive and 
the deductive steps in the formation of con- 
clusion was preserved in a way that forms 
a highly creditable approach to satisfaction of 
those canons of proof which John Stuart Mill 
formulated almost a century later. That is, 
Smith realized the necessity of deriving principles 
to be used deductively from inductive generaliza- 
tions of previous experience. In this general 
form, his science was therefore more catholic 


and more convincing than that of his successors 
who obviously overworked the one or the other 
element of proof, and in either case left the 
proof limping from the weakness of the neg- 
lected support. In subsequent economic theory 
the illustrations have been many and conspicuous, 
on the one hand of a-priori use of generalizations 
not supported by a sufficient induction, and on 
the other hand of historical data-collecting which 
became virtually an end unto itself, because not 
carried to a completeness that afforded credible 

Speaking in the rough, there is only one 
source from which to derive principles of human 
conduct. That source is historical induction. Of 
course, this proposition extends the term "his- 
torical" beyond its ordinary meaning. Every- 
thing is past, and thus "historical," as soon as it 
has occurred, and thus made itself material for 
reflection. The present has become the past while 
the observer adjusts his attention to it. In this 
sense inductions from experience are the only 
positive source for generalizations of valid prin- 
ciples. Book III of The Wealth of Nations is, 
in the first instance, an attempt to show why 
wealth has increased in different ratios in differ- 
ent nations. This particular inquiry, strictly 

^ Cf. Bagehot, above, pp. 67 fF. 


limited, is merely a question of the world's finan- 
cial bookkeeping. Strict limitation of the inquiry 
to this phase, however, would be arbitrary, as the 
world's bookkeeping, and the activities which it 
records, are essential to the world's higher activi- 
ties. Next above the significance of the passage, 
as a study of the growth of wealth, is its signifi- 
cance as a theorem in methodology. It throws 
its weight on the side of the claim that the 
world's experience, as a whole, is the source of 
the world's science; not merely that part of the 
world's experience which consists chiefly of intro- 
spection of the mind's grinding upon itself, with 
neglect of the objective experience which fur- 
nishes the proper grist for the mind. 

It is worth notice, too, that in this book Smith 
again incidentally recognizes the institutional or 
volitional factor, as a variant in the operation 
of what he regarded as the "natural" economic 
factors. Thus: 

Had human institutions, therefore, nfever disturbed the 
natural force of things, the progressive wealth and in- 
crease of the towns would, in every political society, be 
consequential, and in proportion to the improvement and 
cultivation of the territory or country.^ 

The whole of Book III, indeed, from our 
present point of view, is notable for these two 

' P. 386. 


primary reasons : first, it appeals to the historical 
method of establishing economic principles; 
second, it appeals to social occurrences to explam 
variations in the action of economic forces. If 
these two principles had been allowed their share 
of influence since Adam Smith, there would 
have been little room for divergent schools of 
economic theory, and scarcely an appreciable 
demand for the differentiation of sociologists. It 
is not very extravagant hyperbole to say that the 
whole methodology of social science is an elabora- 
tion of the implications of these two principles. 

Even in this strictly economic investigation, 
however, reflections occur which show that 
Smith was closely related by affinity with the 
modern theoretical and practical movements 
toward placing society on a frankly telic basis. 
For example, in discussing the reasons why entail 
justified itself in one state of society and not in 
another, he says : 

When great landed estates were a sort of principalities, 
entails might not be unreasonable. Like what are called 
the fundamental laws of some monarchies, they might 
frequently hinder the security of thousands from being 
endangered by the caprice or extravagance of one man. 
But in the present state of Europe, when small as well as 
great estates derive their security from the laws of their 
country, nothing can be more completely absurd. They 
are founded upon the most absurd of all suppositions, 


the supposition that every successive generation of men 
have not an equal right to the earth, and to all that it 
possesses; but that the property of the present generation 
should be restrained and regulated according to the 
fancy of those who died perhaps five hundred years ago.' 

This chapter is also a brief of the whole 
economic and social argument against slavery as 
a method of production. It is also in effect a 
demonstration of the fallacy of laissez faire as a 
general principle or universal precept. It shows 
that legislation may either kill or cure according 
to circumstances, and according to the fitness of 
the legislation. For example, speaking of the 
impossibility of securing the highest state of cul- 
tivation without the security of the farmer's 
tenure, Smith says: 

In England, therefore, the security of the tenant is 
equal to that of the proprietor Those laws and cus- 
toms so favourable to the yeomanry have perhaps contrib- 
uted more to the present grandeur of England than all 
their boasted regulations of commerce taken together.* 

Perhaps the most important element in this 
portion of The Wealth of Nations, from our 
point of view, is the cumulative argument that 
laws and institutions make or mar economic as . 
well as more general prosperity. If the ocular 
proof had not meanwhile been furnished, it would 
have been incredible that social theory could fall 

' P. 390. * P. 397. 


from the high level of Adam Smith's outlook to 
the pitiable shallowness of the laissez-faire 
theory. Because certain types of interest did not 
want the government to perform certain types of 
actions, formulas of temporary policy were 
gravely promoted to the rank of inflexible prin- 
ciples, to the effect that goverment violates the 
fundamental order of society if it modifies 
economic action at all. The humor of the situa- 
tion was in the fact that the very people who 
most zealously fed the altar-fires of this super- 
stition had first taken elaborate precautions to 
build up around their own interests the most 
rigid system of legal safeguards that had ever 
surrounded vested right since the strictest period 
of the Roman law. 



In the ''Introduction" to Book IV, entitled 
"Of Systems of Political Economy," Smith 
divulges more explicitly than before his concep- 
tion of political economy as a distinct science. 
According to his description it is, as we have 
claimed, a technology of wealth-production, first 
for the people and second for the state. Political 
economy, according to this description, is "a. 
branch of the science of a statesman or legisla- 
tor." As we have seen, all the sciences tributary 
to statesmanship and all other parts of the theory 
of conduct were to men of Adam Smith's type 
details subordinate to an inclusive moral 

Book IV is a critique of systems of political 
economy, or rather of two principal systems; 
viz., first, "the commercial or mercantile sys- 
tem," second, "the agricultural systems, or those 
systems which represent the produce of land as 

^ In another book I shall call attentiori to the instructive 
antithesis between Smith's conception of the relations of politi- 
cal economy and that of Von Mohl, Encyklop'ddie der Staats- 
wissenschaften, 2d ed., pp. 57, 58. 



either the sole or the principal source of the 
revenue and wealth of every country." 

The thread of Smith's argument in this book 
is not altogether clear at first sight. The reader 
might suppose that the book would include a pre- 
cise account of the system of political economy 
which the author supposed to be valid. In fact, 
the discussion is virtually a continued exposition 
of his own labor theory of political economy, by 
the indirect method of exposing the errors of the 
mercantilist and the agricultural theories. When 
he reaches the second of these systems,^ he assigns 
as his reasons for treating it briefly that it has 
never done any great harm, and is never likely to. 
That is, he was somewhat of the opinion of the 
boy who defined salt as "the stuff that makes 
'taters taste so bad when you don't put any on." 
By implication Smith justifies his long discussion 
of the mercantilist theory on the ground that it 
has done harm, and is likely to do more. In effect, 
however, these criticisms are merely to fill out his 
own labor theory of economics which was 
sketched in the first two books. 

The plan of our study does not permit atten- 
tion to the details of Smith's exposition. We 
are now interested simply in those indications 
which betray Smith's opinions about the relations 
*n, 179. 


of economic technique to the inclusive moral 

It is in point, however, to reinforce the 
observation made in the last paragraph of Section 
V. While leading up to an argument in support 
of a certain economic system. Smith artlessly 
describes notorious types of manipulation of 
opinion, and of government, to procure legisla- 
tion favorable to special interests. That is, he 
shows how the commercial interests retained 
theorists to formulate philosophies reflecting 
their views, created a tradition which made these 
special interests the center or foundation of 
abstract and applied economic systems, and 
induced Parliament to legislate these special inter- 
ests into the position of vested and fortified 
interests. This done, the same interests turned 
about and demanded, both directly and through 
their theoretical attorneys, that legislation should 
henceforth be declared a vice! That is, having 
secured their own interests by law, it should 
henceforth be forbidden to other interests to get 
the same advantage from law! As we have 
said, this delicious naivete was not the rule of a 
nursery game. It was the serious contention of 
Britain's strongest men for the larger part of a 
century, and it is still making a strong bid for the 
rank of economic orthodoxy both in England 


and the United States! Referring to the mer- 
cantilist theories, Smith says : 

Such as they were, however, those arguments con- 
vinced the people to whom they were addressed. They 
were addressed by merchants to parliaments, and to the 
councils of princes, to nobles, and to country gentlemen; 
by those who were supposed to understand trade, to those 
who were conscious to themselves that they knew nothing 
about the matter. That foreign trade enriched the coun- 
try, experience demonstrated to the nobles and country 
gentlemen as well as to the merchants ; but how, or in what 
manner, none of them well knew. The merchants knew 
perfectly well in what manner in enriched themselves. It 
was their business to know it. But to know in what 
manner it enriched the country, was no part of 
their business. The subject never came into their 
consideration, but when they had occasion to apply 
to their country for some change in the laws relat- 
ing to foreign trade. It then became necessary to 
say something about the beneficial effects of foreign trade, 
and the manner in which those effects were obstructed 
by the laws as they then stood. To the judges who were 
to decide the business, it appeared a most satisfactory ac- 
count of the matter, when they were told that foreign 
trade brought money into the country, but that the laws 
in question hindered it from bringing so much as it 
otherwise would do. Those arguments heretofore pro- 
duced the wished-for effect The title of Munn's 

book, England's Treasure in Foreign Trade, became a 
fundamental maxim in the political economy not of 
England only, but of all other commercial countries. The 
inland or home trade, the most important of all, the trade 


in which an equal capital afifords the greatest revenue, 
and creates the greatest employment to the people of the 
country, was considered as subsidiary only to foreign trade. 
It neither brought money into the country, it was said, 
nor carried any out of it. The country therefore could 
never become either richer or poorer by means of it, 
except so far as its prosperity or aecay might indirectly 
influence the state of foreign trade. 

The thesis which Smith opposes to the mer- 
cantihst assumption is compressed into the 
following proposition : 

It would be too ridiculous to go about seriously to 
prove that wealth does not consist in money, or in gold 
and silver; but in what money purchases, and is valuable 
only for purchasing. Money, no doubt, makes always a 
part of the national capital; but it has already been shown 
that it generally makes but a small part, and always the 
most unprofitable part of it.^ 

It would be an excursus from the main path 
of our argument to cite such a proposition, if it 
were not more pregnant today than it was when 
it was written. So far as we can judge of the 
mental content of the most intelligent men of 
that period, it appears that the proposition must 
have been much more narrowly technological to 
them than it is to us. Since psychological and 
sociological analyses of value, and consequently 
of wealth, have reorganized the associations which 

' P. 437. 


the proposition suggests, we are bound to find it 
conclusive for reasons much more comprehen- 
sive than even Smith himself could have clearly 
apprehended.' It would be an interesting diver- 
sion to fortify this judgment by analyzing the 
course of argument through which Smith sup- 
ports the theorem. It is largely a most ingenious 
discussion of the relative economic utility of 
money, or the precious metals, and other com- 
modities.^ While the analysis is remarkably 
skilful, our attention is necessarily arrested by 
the contrast between its emphasis and that which 
would appear in a modern exposition of the same 
subject. That is, we should now support the 
same thesis less upon strictly economic grounds, 
and more upon psychological and sociological 

As a connecting link between different stages 
of economic theory and practice. Smith's conclu- 
sion about the social consequences of the mer- 
cantilist theory must be noticed, viz. : 

The two principles being established, however, that 
wealth consisted in gold and silver, and that those 
metals could be brought into a country which had no 
mines, only by the balance of trade, or by exporting to a 
greater value than it imported; it necessarily became the 
great object of political economy to diminish as much as 
possible the importation of foreign goods for home con- 

*Pp. 437-50. 


sumption, and to increase as much as possible the expor- 
tation of the produce of domestic industry. Its two great 
engines for enriching the country, therefore, were re- 
straints upon importation and encouragements to exporta- 

We are not committed to inquiry into the 
history of economic theory far enough to find 
out how much of Smith's repudiation of niercan- 
tiHsm was the result of his own initiative and 
how much the effect of the teachings of the , 
Physiocrats.^ The main point for our purpose is 
that Smith dehberately stated it as his aim to 
treat the case against mercantihsm strictly in its 
bearings upon the increase of national wealth. 
That is, he prescribed for himself a distinctly tech- 
nological inquiry, and excluded as far as possible 
all ulterior considerations of the relations . 
between wealth and the other factors of welfare. 
Having enumerated the two types of restraints 
upon importation, and "the four types of device 
adopted to promote exportation, under mercan- 
tilism,'^ Smith announces his plan of attack as 
follows : 

The two sorts of restraints upon importation above 
mentioned, together with these four encouragements to . 

' P. 450. 

® Boisguillebert, 1707; the French-Irishman Cantillon, 1755; 
Quesnay, 1758; Gournay, 1702-59; Turgot, 1727-81 ; etc. 
'P. 451. 


exportation, constitute the six principal means by which 
the commercial system proposes to increase the quantity 
of gold and silver in any country by turning the balance 
of trade in its favour, I shall consider each of them in a 
particular chapter, and without taking much further 
notice of their supposed tendency to bring money into the 
country, I shall examine chiefly what are likely to be the 
effects of each of them upon the annual produce of its 
industry. According as they tend either to increase or 
diminish the value of this annual produce, they must evi- 
dently tend either to increase or diminish the real wealth 
and revenue of the country.^ 

We must again define the standpoint from 
which we are analyzing The Wealth of Nations. 
In brief, we are pointing out, first, that Adam 
Smith was fundamentally a moral philosopher, 
and that every division of his thinking was sub- 
ordinated, in his own mind, to an inclusive moral 
philosophy; second, that, in selecting the prob- 
lems of wealth for minute investigation, Smith 
abstracted a body of phenomena from the whole 
body of moral phenomena, and treated them as 
though they could be considered as suf^cient unto 
themselves; third, that in so doing Smith set the 
pace for a technology of wealth, as an end unto 
itself; fourth, that such a technology is enor- 
mously important, but that, for this very reason, 
it tends to overbalance the other elements of a 

' P. 452. 


comprehensive moral philosophy ; for instance, to 
take a concrete illustration, it begs the question 
whether it is conceivable that Englishmen might, 
on the whole, be better off under the less produc- 
tive of two economic systems. It contains no hint 
of the possibility that in a given situation improve- 
ments in the system of distribution may do more 
than increase of production toward promoting 
welfare. In other words, this technology of 
wealth confidently assumes that the total wel- 
fare of a people is in direct proportion to the 
aggregate of wealth, and it therefore makes 
wealth the center of calculation, while the com- 
plete or even wider welfare of human beings 
comes into view only as a subsidiary con- 
sideration. There is no sufficient reason to infer 
that, in Smith's case, this temporary obscuration 
of the moral by the economic meant any confu- 
sion about the ultimate subordination of the 
economic to the moral. It was merely a provi- 
sional arrest of attention upon the economic 
phases of moral relations. Our further 
contention is, however, fifth, that there was a 
strong undertow in economic theory pulling 
toward complete isolation of economics from 
morals, and toward a valuation of wealth above 
the other elements of human welfare. That is, 
the foundation of moral philosophy tended to 


disappear from beneath social theory, and it 
tended to become a bare economic technology. 
If the extreme decline into unmorality is to be 
connected with the name of a single economic 
writer, J. R. McCullock (1779-1864) may safely 
be nominated for the distinction. Our main 
argument is, sixth, that this abstraction of the 
economic phase of activity and theory from the 
totality of human activities, and from compre- 
hensive moral philosophy, is a temporary provin- 
cialism. Human activities are not thus isolated; 
and theories of human activities, although they 
may call themselves sciences, are vicious theories 
to the extent that they depend upon presump- 
tions of the isolation and independence of 
classes of activities. In other words, what- 
ever be the content of economic theory, it 
must find for itself a valid correlation with the 
whole scope of positive moral philosophy, before 
it can recover the relative dignity which belonged 
to it in Adam Smith's scheme of morality. 

For the reasons restated in the foregoing 
paragraph, our study does not call for detailed 
discussion of the following six chapters.^ They 
are primarily technological with reference to the I 
frankly proximate end — the production of ] 
wealth. References to more ultimate ends are 
inevitable tributes to the larger constitution of 

» Book IV, Chaps. II-VII. 


things, which cannot be successfully ignored, and 
which Smith, even as a technologist, apparently 
never desired to ignore. Such references are, at 
best, however, casual, not essential to the techno- 
logical argument. The one cumulative argu- 
ment within the field of our present interest, 
which these chapters unintentionally enforce, is 
that there is the most intimate and incessant 
reaction between all economic activities and all 
customs and laws of the societies maintaining 
the activities. The relations of cause and effect 
between these different classes of activities are so 
evident that it would be a priori impossible to 
imagine a theory of them which would pre-sup- 
pose their virtual independence. Nearly the 
whole weight of the classical economics, how- 
ever, was cast into the balance on the side of the 
illusion that economic activities constitute a 
species of perpetual motion sufficient unto itself, 
and that this sanctuary would be profaned if it 
were in any way disturbed by the other social 
interests. The classical political economy well- 
nigh succeeded in suppressing the larger question : 
What ratio does the wealth factor in the human 
equation bear to all the other factors of welfare 
in typical situations? So far as its influence 
prevailed, the classical economics left the impres- 
sion, not only that all other human problems 


must defer to the wealth problem, but that the 
solution of the wealth problem is ipso facto the 
solution of all other human problems. In other 
words, the classical political economy tended 
toward abandonment of the attempt to interpret 
life as a moral problem, and substituted an 
attempt to interpret life in terms of the tech- 
nique of economic production. 

Nor is this all. The economic production which 
the classical economics had in mind was the pro- 
duction, not of the actual human beings whose 
essential moral relations were fairly apprehended. 
It was the production of an aggregate of individ- 
uals whose moral relations were considered, for 
the purposes of economic theory, to be in a con- 
dition of foreordained and permanent status. The 
most preposterous feature of this naive presump- 
tion was that it serenely accepted, as a statical 
condition, the unsocial activities of predatory 
economic self-interest, artfully intrenching itself 
behind social contrivances which the lawmakers 
were induced to create, and then piously anathe- 
matizing the endeavors of any competing interest 
that attempted to get like reinforcement for itself ! 
This presumption alone damned the classical 
economy. Economic activities are merely frac- 
tions of the total self-expression of men whose 
moral relations are in a perpetual flux of re- 


adjustment. A fundamental sociological problem 
is that of determining the formulas according to 
which these economic and moral activities are 
varying functions of one another. 

It cannot be too often repeated that these 
judgments are not passed on the philosophy of 
Adam Smith, but on the degenerate scion of his 
theory which we know as the classical economics. 
Our thesis is that the sociologists are contending 
for a return to the moral basis upon which Adam 
Smith's economics rested. Not that the specific 
content of his moral philosophy could be vindi- 
cated now, but that his philosophy was primarily 
moral, instead of primarily technological. He 
saw, as economists half a century after him had 
become almost incapable of seeing, that economic 
processes are, and must be, at last, incidents of 
larger moral processes. This might easily be 
illustrated in such a case, for example, as the 
ultimate reasons which he adduces for peaceful 
accommodation between the mother-country and 
the American colonies.^ ^ 

The concluding paragraph of Chapter VIH 
is in Smith's most frank and sententious style : 

It cannot be very difficult to determine who have been 
the contrivers of this whole mercantile system; not the 
consumers, we may believe, whose interest has been en- 

^" Vol. II, pp. 134-38, et passim. 


tirely neglected; but the producers, whose interest has 
been so carefully attended to; and among this latter class 
our merchants and manufacturers have been by far the 
principal architects. In the mercantile regulations, which 
have been taken nqtice of in this chapter, the interest of our 
manufacturers has been most peculiarly attended to, and 
the interest, not so much of the consumers as that of some 
other sets of producers, has been sacrificed to it." 

Turning to the second type of political econ- 
omy, Adam Smith says : 

The agricultural systems of political economy will 
not require so long an explanation as that which I have 
thought it necessary to bestow upon the mercantile or 
commercial system. 

That system which represents the produce of land as 
the sole source of the revenue and wealth of every 
country has, so far as I know, never been adopted by any 
nation, and it at present exists only in a few men of great 
learning and ingenuity in France. It would not, surely, 
be worth while to examine at great length the errors of a 
system which never has done, and probably never will 
do any harm in any part of the world." 

Smith finds the capital error of this system 
in ''its representing the class of artificers, manu- 
facturers and merchants, as altogether barren 
and unproductive." ^^ 

Yet Smith continues: 

This system, however, with all its imperfections, is 
perhaps the nearest approximation to the truth that has 

"II, 178. "II, Chap. IX, p. 179- "II, 192. 


yet been published upon the subject of political economy, 
and is upon that account well worth the consideration of 
every man who wishes to examine with attention the 
principles of that very important science." Though in 
representing the labour which is employed upon land as 
the only productive labour, the notions which it inculcates 
are perhaps too narrow and confined; yet in representing 
the wealth of nations as consisting, not in the incon- 
sumable riches of money, but in the consumable goods 
annually reproduced by the labour of society; and in 
representing perfect liberty as the only effectual expedient 
for rendering the annual reproduction the greatest pos- 
sible, its doctrine seems to be in every respect as just as it 
is generous and liberal/'' 

This passage incidentally justifies me in call- 
ing Smith's theory "labor economics," in dis- 
tinction from "mercantile" or "agricultural" 
economics. ^^ Although we have been taught to 
call Smith's theory the "system of natural lib- 
erty," his own statement shows that "natural 
liberty" is the voluntary means of increasing 
wealth rather than the ultimate principle upon 
which the production of wealth depends. This 
perception does not affect one way or the other 
the main contention that Smith's economics was 
virtually a chapter in his moral philosophy. He 
does not directly argue that "natural liberty" 

" Of course, this proposition must be understood as ex- 
plained by pp. 189, 190, above. 

" II, 196. '" I ; cf. p. 205, below. 


is the best means to the production of wealth 
because it is right. It is the best means because 
it is most productive. This would not preclude 
the argument from purely moral grounds that 
natural liberty is an economic imperative because 
it is right. Smith's conviction of its righteous- 
ness, however, appears to have sprung very largely 
from his belief that it was expedient. Although 
he would have regarded the utilitarianism of Ben- 
tham as bizarre, yet he was practically much less 
removed from the logic of Benthamism than he 
would have been willing to admit if Bentham 
had been more nearly his contemporary.^^ 

Another summary of Smith's whole economic 
philosophy, with just a hint of its bearing upon 
general social philosophy, occurs at the close of 
Book IV, and deserves a place in this digest : 

It is thus that every system which endeavours, either, by 
extraordinary encouragements, to draw towards a particular 
species of industry a greater share of the capital of the so-^ 

" One might make a good deal in support of this judg- 
ment out of a passage in Smith's Lectures on Justice, etc. 
(Cannan), pp. ii, 13. Having remarked that in a monarchy 
the principle of authority prevails, but in a democracy that 
of utility, Smith continues : "Men in general follow these 
principles according to their natural dispositions. In a man of 
a bold, daring and bustling turn the principle of utility is pre- 
dominant, and a peaceable, easy turn of mind usually is pleased 
with a tame submission to superiority." The objections to the 
suggested use of the passage are obvious enough, but on the 


ciety than what would naturally goto it ; or, by extraordinary 
restraints, to force from a particular species of industry 
some share of the capital which would otherwise be em- 
ployed in it; is in reality subversive of the great pur- 
pose which it means to promote. It retards, instead of 
accelerating, the progress of the society towards real 
wealth and greatness; and diminishes, instead of increas- 
ing, the real value of the annual produce of its land and 

All systems, either of preference or of restraint, there- 
fore, being thus completely taken away, the obvious and 
simple system of natural liberty establishes itself of its 
own accord.^* Every man, as long as he does not violate 
the laws of justice, is left perfectly free to pursue his 
own interest his own way, and to bring both his industry 
and capital into competition with those of any other 
man, or order of men. The sovereign is completely dis- 
charged from a duty, in the attempting to perform which 
he must always be exposed to innumerable delusions, and 
for the proper performance of which no human wisdom 
or knowledge could ever be sufficient; the duty of super- 
intending the industry of private people, and of directing it 

whole it is worth noting in this connection. Cf. loc. cit. for 
Smith's statement of the grounds of utility which "ought to 
make marriage perpetual ;" also pp. 94 flf. on master and ser- 
vant. Dugald Stewart expressed a judgment quite in the 
line of my conclusion. (Account of the Life, etc. [Bohn ed.], 

p. XXX.) 

In Part I, Sec. 3, of the same lectures, entitled by the 
editor "How Republican Governments Were Introduced," the 
explanation is utilitarianism of a most frankly opportunistic 

" Cf. p. 203, above. 


towards the employments most suitable to the interest of 
the society. According to the system of natural liberty, 
the sovereign has only three duties to attend to; three 
duties of great importance, indeed, but plain and intelli- 
gible to common understandings; first, the duty of protect- 
ing the society from the violence and invasion of other 
independent societies; secondly, the duty of protecting, as 
far as possible, every member of the society from the in- 
justice or oppression of every other member of it, or the 
duty of establishing an exact administration of justice; 
and thirdly, the duty of erecting and maintaining certain 
public works and certain public institutions, which it 
can never be for the interest of any individual, or any 
small number of individuals, to erect and maintain; be- 
cause the profit could never repay the expence to any 
individual or small number of individuals, though it may 
frequently do much more than repay it to a great so- 

At this point the sociologist may be pardoned 
for musing: 

Of .... the fruit 

Of that forbidden tree, whose mortal taste 

Brought death into the world, and all our woe. 

The a-priori political philosophy which, from 
Plato down, imposed upon social theory one of 
the stupidest dei ex machina in the whole Wal- 
halla of superstition, that inflexible monster of 
pedantic imagination, "sovereignty," betrays 
itself in this passage, and furnishes one of the 

" II, pp. 206, 207. 


important clues to the fatuity of the classical 
economy. The vitality of Smith's fundamental 
morals could not save his theory until it could be 
delivered from the bondage of this arbitrary 
dogma. This is merely a more occult way of 
saying that inadequate analysis of the general 
social process set very strait bounds for exten- 
sion of the positive method which Smith honestly 
applied so far as his doctrinal limitations would 
permit. A mechanical political philosophy was 
accomplice before the fact in a large part of the 
misconduct of classical economics. From one 
point of view modern socialism is the natural 
rebound, not so much from eighteenth-century 
economic theory, as from its stilted political pre- 
conceptions. I merely call attention in passing 
to this factor in the evolution of modern social 
theory. I hope to return to the subject in another 

The metaphysical doctrine of "sovereignty" is 
as distinct from the literal fact of sovereigns, of 
various types, as the Ptolemaic theory of the uni- 
verse was from the facts of astronomy. Govern- 
ments actually exert a quasi-absolute power over 
subjects within territory which legal fictions may 
treat as beyond the prerogative of other govern- 
ments. For convenience we may call govern- 
ments, or nations, if we please, "sovereigns." 


We may take our own chances of escaping the 
confusions involved in the traditional problems 
of the actual location and sanctions of sover- 
eignty; whether in the government itself, in "the 
state," in the people collectively, in the people 
individually, or in some other conceivable or 
inconceivable sanctuary. In any case, the politi- 
cally organized groups to which a more or less 
fictitious sovereignty has always been ascribed 
carry on collective activities. These activities are 
costly. The expenses have to be met. There is 
nothing fictitious about the fiscal needs of states. 
At the same time, the questions of national 
revenue may be treated as purely technological 
problems, which have no more immediate refer- 
ence to the larger problems of human welfare 
than the technology of production in the strict 



The fifth book of The Wealth of Nations 
treats of "The Revenue of the Sovereign or 
Commonwealth." It is not worth our while to 
inquire how advisedly Smith used these terms; 
i. e., whether he was entirely free from use of 
the term "sovereign" in a shifting sense. If it 
were, it would be necessary to show, from such 
passages as the opening paragraphs of Book V, 
Chapter I, Part IV,i that Smith meant by "the 
sovereign" sometimes the commonwealth, some- 
times the monarch, and perhaps sometimes an 
undefined third something, apparently corre- 
sponding with one of the German concepts of 
"the state" as distinguished from the other alter- 
natives. Our question is, however: To what 
extent did Smith recognize separate spheres of 
activity for various social technologies, and to 
what extent did he provide for the subordina- 
tion of fiscal technique to a larger range of moral 
requirements? Was his treatment of public 

*n, p- 339. 



revenue merely political technology, or was it, 
beyond that, an inquiry in ethics?^ 

Apparently Smith conceives of the fiscal prob- 
lem, not merely as technical, but as broadly 
moral. This is certainly true if the last para- 
graph in the fourth book is to be taken at face 
value. It reads : 

The proper performance of those several duties of the 
sovereign necessarily requires a certain expence; and this 
expence again necessarily requires a certain revenue to 
support it. In the following book therefore, I shall en- 
deavour to explain: first, what are the necessary expences 
of the sovereign or commonwealth; and which of those 
expences ought [sic] to be defrayed by the general con- 
tribution of the whole society; and which of them, by 
that of some part only, or of some particular members of 
the society; secondly, what are the different methods in 
which the whole society may be made to contribute to- 
wards defraying the expences incumbent on the whole so- 
ciety and what are the principal advantages and 
inconveniences of each of those methods; and thirdly, 
what are the reasons and causes which have induced 
almost all modern governments to mortgage some part of 
this revenue, or to contract debts, and what have been 
the effects of those debts upon the real wealth, the an- 
nual produce of the land, and labour of society. The 

^ In either case, it is to be noted that Book V exhibits a 
radically different conception of the relation of political econ- 
omy to political science from that of Von Mohl. Cf. above, 
p. 189. 


following book, therefore, will naturally be divided into 
three chapters.^ 

Taken literally, this paragraph is a requisition 
upon the total resources of moral philosophy. 
The word ''ought" occupies a place in the first 
division of the subject which might have delighted 
the soul of Kant. The terms "advantages" and 
"inconveniences" might be adopted as blanket 
phrases for all the criteria which could be insisted 
on by the most exacting telic philosophy. The 
third inquiry points directly toward radical prob- 
lems in social psychology, but the last clause seems 
to put the ban on these larger interpretations. 
It seems to indicate that, after all, in Smith's 
reckoning, all the oughtness and the convenience 
were merely utility with reference to wealth 
alone, and that no account was to be taken of 
utilities in which wealth was simply a mediate 
term. Some close scrutiny of Book V is neces- 
sary, therefore, in order to make out how far 
either of these appearances is to be credited. 

On any theory of political society whatsoever, 
so long as men remain in a state which makes 
resort to war tolerable, the costs of war must be 
defrayed. Civil society must, therefore, find 
ways of paying the bills of war. This is the 
first item on the debit side of Smith's discussion 

' II, p. 207. 


of national revenue. Neither the morality of 
war, nor the economics of war in the wider 
sense, is here brought into account. The points 
are, first, that wars occur ; second, that they must 
be paid for somehow.^ With not a little of the 
spirit of Herbert Spencer,^ Smith shows that, 
with the development of institutions, in general, 
and of the art of war in particular, the expense 
of war is shifted largely from the individual 
fighters, and becomes a charge upon the fiscus. 
While the abundance of the material betrays 
Smith into diffuseness upon what might be called, 
in a very loose sense, the sociology of war, all 
that it amounts to is amplification of the proposi- 
tion that every civilized nation must have a 
military budget. 

Part II of the same chapter expands the 
proposition that the administration of justice is 
costly, and that the cost must be covered by 
national revenues. Again, the discussion takes a 
wide range, in securing historical evidence for 
the platitude. Incidentally the discussion asserts, 
in the most unrestricted fashion, that property is 
privilege, and that it is the creature of social voli- 
tion. This perception, of course, makes any 

* II, pp. 208 ff. 

^Principles of Sociology, Part V, Chap. XII, "Military 


selected property system, according to Smith'3 
general philosophy, liable to answer for its justi- 
fication before the ultimate tribunal of social 
appeal. This corollary is merely latent in Smith's 
argument. The main point is that property 
questions demand an administration of justice, 
and this is also a charge on the national budget.*' 
Other variants of disturbed relations, more or 
less involved with property, and all reinforcing 
the demand for a legal system, are the different 
kinds of subordination that grow up in society; 
e. g., from variations of personal qualifications, 
from differences in age, from differences in 
wealth, and from differences in the prestige of 

Here again Smith is on the borderland of 
analytical sociology; but, while his observations 
are pertinent, they merely furnish padding for 
the 'essential proposition. In the whole of Book V 
Smith indulges in wider detours from the 
direct path of his argument than in the earlier 
parts of the work. To change the figure, he 
does not hew close to the economic line, but cuts 
into the Imaterial of political science. For 
example, at the close of Chapter I, Part II : ^ 

When the judicial is united to the executive power, 
it is scarce possible that justice should not frequently be 

'II, pp. 22T, 228. ^11, pp. 240, 241. 


sacrificed to, what is vaguely called, politics. The person 
entrusted with the great interests of the State may, even 
without any corrupt views, sometimes imagine it neces- 
sary to sacrifice to those interests the rights of a private 
man. But upon the impartial administration of justice 
depends the liberty of every individual, the sense 
which he has of his own security. In order to 
make every individual feel himself perfectly secure 
in the possession of every right which belongs to 
him, it is not only necessary that the judicial should be 
separated from the executive power, but that it should be 
rendered as much as possible independent of that power. 
The judge should not be liable to be removed from his 
office according to the caprice of that power. The regular 
payment of his salary should not depend upon the good- 
will, or even upon the economy of that power. 

Part III of Chapter I treats in a very similar 
way the items of expense for "pubHc works and 
pubHc institutions." The main thesis is continued 
in the opening paragraph : 

The third and last duty of the sovereign or common- 
wealth is that of erecting and maintaining those public 
institutions and those public works, which, though they 
may be in the highest degree advantageous to a great 
society, are, however, of such a nature that the profit 
could never repay the expence to any individual or small 
number of individuals, and which it therefore cannot be 
expected that any individual or small number of individu- 
als should erect or maintain. The performance of this 
duty requires two very different degrees of expence in the 
different periods of society.^ 

MI, p. 241. 


At first reading, if one knew nothing of the 
previous argument, one might infer that the 
author of this paragraph had in mind a range of 
pubHc works which would tend rather toward 
the sociaHstic than toward the laissez-faire 
extreme. If we reflect, however, that the term 
"advantageous" in Smith's vocabulary meant in 
this connection "favorable to the production of 
wealth," the apparent implications of the passage 
are considerably modified. The really material 
thing is the claim that some public works must be 
maintained by the state. There is little doubt, 
however, that the assumptions behind this claim 
in Smith's mind would lean logically much 
further toward liberalism than the doctrines of 
the l^ter classical economy. In the second para- 
graph, for instance,^ Smith groups the "works" 
which he has in mind chiefly in two classes; viz., 
first, "those for facilitating the commerce of 
society," and, second, "those for promoting the 
instruction of the people." Here is a distinct 
proposition which the Spencerian type of indi- 
vidualism abhorred, and which cannot be regarded 
as primarily in the classical sense. 

Smith's treatment of the first group falls 
mainly within the scope of pure economic theory, 
if we include in economic theory the equities of 

•II, p. 241. 


exchange, considered solely on the basis of market 
value of services rendered. The reasoning, how- 
ever, is neither as clear nor as convincing as in 
the earlier parts of the treatise. As in the case of 
the two previously named items of public expendi- 
ture, the problem of apportioning the amount 
between individuals and the public is by no means 
conclusively solved. The argument drops rather 
from the level of scientific analysis to that of the 
essay setting in order accepted commonplaces. 
The reasons assigned for division of expense are 
rather more definite under this third head of 
"public works," than under the two previous 
titles. At the same time, more is left to be 
desired in this connection than in almost any 
other case which Smith undertakes to analyze. 
I enumerate the reasons which he expressly 
alleges, and return to the subject after reaching 
the close of the chapter. The reasons named are 
these : First, facility of collecting pro-rata shares 
of the cost from users of the improvement ; as in 
the case of highways, bridges, canals, etc. ; but, 
on the contrary, certain ill-workings of the toll 
system lead to a somewhat futile discussion of 
the relative advantages of private and public 
ownership of toll rights, and to anticipation of 
questions of taxation, which had been assigned 
to the next chapter. Second, in the case of works 


necessary to facilitate some particular branches 
of commerce (e. g., forts and troops in the case 
of the East India Company), the reasonableness 
of collecting the cost from the protected inter- 
est. The reasonableness alleged seems to rest on 
a plain quid pro quo basis. Third, the justice of 
levying customs duties and the like for defraying 
the cost of defending trade in general. This 
justice also rests at last upon the qttid pro quo 
basis. Fourth, the inexpediency of intrusting the 
collection of costs of such defense to private 
companies (East India, Turkish, etc.). The 
evidence supporting this count includes nearly 
every type of economic injustice. Fifth, the 
economic incompetence of joint stock companies.^^ 
Sixth, the expediency of making the service carry 
the cost, as by fees from pupils (in the case of 
schools). This count is, in our view, the same 
as the first. It introduces, however, the irrele- 
vant question : 

Have private or local endowments contributed in 
general to promote the end of their institution? Have 
they contributed to encourage the diligence, and to im- 
prove the abilities of the teachers? Have they directed the 
course of education towards objects more useful, both 
to the individual and to the public, than those to which it 
would naturally have gone of its own accord." 

"II, pp. 262 ff. "II, p. 281. 


Then follows an extended discussion of 
administrative policies in educational institutions. 
The whole argument suggests General Walker's 
easy transition from pure economics to public 
policy on complex questions, without critical 
examination of other factors of the problem 
except the economic. The discussion is an uncon- 
scious illustration of the impossibilty of abiding 
by the economic abstraction when dealing with 
anything beyond the purely technical phases of 
production. The passage is at the same time an 
instance, so serious that it is humorous, of the 
characteristic sciolism of the classical economists 
in assuming competence to make their economic 
generalizations the sufficient basis for authorita- 
tive discourse upon matters and things in general. 
Here is a disquisition on the virtues and vices 
of pedagogy, from the Greeks to the Georges, 
smuggled into a treatise on public finance !^^ 

It should be said, in partial extenuation, that 
in this portion of his work Smith seems fo have 
felt at liberty to wander from his theme. He 
really inserts a series of encyclopaedia articles 
rather loosely connected with the specific theo- 
rems which the bare analysis of his argument 
called upon him to support. These homiletical 
gratuities contain much wisdom, but they are as 

" II, pp. 281-308. Cf. reference to Bagehot, above, p. T2. 


out of place as a silk hat with a sack coat. These 
disquisitions do not belong with a discussion of 
the problems of public revenue, unless the whole 
subject of public revenue is organized into a 
much wider philosophy of society than Smith 
has outlined in The Wealth of Nations. All he 
needs for the immediate uses of his main inquiry 
is a list of the actual purposes for which the 
British type of society must provide. In such an 
excursus as the one just noted he does not go 
far enough to get at the roots of the question: 
Should society provide at all for such an object? 
He merely goes far enough to make his real 
argument carry a needless burden of luggage. 

The same comments are in point in connection 
with the next subject, "Of the Expence of the 
Institutions for the Instruction of People of 
All Ages." The substance of the section may be 
inferred from the opening sentence: ^'The insti- 
tutions for the instruction of people of all ages 
are chiefly those for religious instruction.'' Then 
follows an abbreviated history and critique of 
ecclesiastical institutions.^^ It is grotesquely out 
of proportion, in whatever light it is considered. 
For the reason alluded to in the case of schools, 
it is uncalled for as a preliminary to discussion 
of British revenues. As a treatise on the struc- 

^« II, pp. 309-39. 


ture and functions of ecclesiastical institutions as 
tributary to civilization in general, it opens up all 
the unsettled questions of sociology. A founda- 
tion of general sociology would have to be 
installed before opinions on such complex sub- 
jects could have a scientific basis. As in the 
section on educational institutions, this inquiry 
into the administration of ecclesiastical institu- 
tions is full of partially generalized and 
partially co-ordinated wisdom. The closing 
paragraph is characteristic : 

The proper performance of every service seems to re- 
quire that its pay or recompense should be, as exactly as 
possible, proportioned to the nature of the service. If 
any service is very much underpaid, it is very apt to 
suffer by the meanness and incapacity of the greater part 
of those who are employed in it. If it is very much over- 
paid, it is apt to suffer, perhaps, still more by their negli- 
gence and idleness. A man of a large revenue, whatever 
may be his profession, thinks he ought to live like other 
men of large revenues ; and to spend a great part of his 
time in festivity, in vanity, and in dissipation. But in a 
clergyman, this train of life not only consumes the time 
which ought to be employed in the duties of his function, 
but in the eyes of the common people destroys almost en- 
tirely that sanctity of character which can alone enable 
him to perform those duties with proper weight and au- 

Part IV in Chapter I of Book V was referred 

" 11, p. 339. 


to above in evidence of the shifting senses in 
which Smith uses the term "sovereign." The 
title of the section is, "Of the Expence of Sup- 
porting the Dignity of the Sovereign." Here it 
is plain that the "sovereign" is not the state, nor 
the people, but the monarch. The plain proposi- 
tion which is in the line of the prospectus of 
Book V is merely that the public revenues must 
provide for the support of the chief magistrate. 
Smith incontinently restricts himself to a skimpy 
half-page on this subject, when by parity of rea- 
soning it might fairly have consumed at least a 
score of pages. Then, as though under conviction 
of sin for his errors of commission in the one- 
hundred-and-thirty-four-page-long chapter, he 
recapitulates all that is really pertinent in it in 
less than two pages. Still further abbreviated, 
it amounts to this : 

The expence of defending the society, and that of sup- 
porting the dignity of the chief magistrate, are both laid 
out for the general benefit of the whole society. It is 
reasonable, therefore, that they should be defrayed by the 
general contribution of the whole society, all the different 
members contributing, as nearly as possible, in proportion 
to their respective abilities. Other items of national ex- 
pence are not so obviously for the benefit of the common- 
wealth as a whole. The burden of these items may, 
therefore, reasonably be borne in part by *he particular 
persons who cause the expence, or get the initial benefit 


of it Such items are the administration of justice, local 
or provisional outlays, turnpikes, educational or ecclesi- 
astical institutions, etc. The general revenue of the 
society, over and above defraying the expence of defend- 
ing the society, and of supporting the dignity of the chief 
magistrate, must make up for the deficiency of many par- 
ticular branches of revenue." 

Recurring to a point mentioned above, the 
reader will probably have noticed that the sched- 
ule of reasons for appropriating public expenses 
between the commonwealth and certain more in- 
terested or responsible members of the state, 
hardly bore the evidence of completeness. One 
need not be an expert in higher criticism to be 
tolerably confident in the opinion that Smith was 
not thoroughly clear in his own mind as to what 
he was trying to do in the chapter. It contains a 
number of incoherent ventures in general social 
philosophy. Among them the least successful 
was the excursion into administrative philos- 
ophy, in which he attempted to outline a scheme 
of apportioning civic expenses. His program 
stimulates the expectation that he will try to 
probe the subject thoroughly. He disappoints 
this hope ignominiously. His treatment of the 
subject is altogether sophomoric. With the excep- 
tion of the six reasons scheduled above, he 

"11, p. 341. 


avoids the problem altogether, and has recourse 
to the diversions in general social philosophy 
which we have reviewed. 

But is it not finical, and even self-contra- 
dictory, to begin with laudation of Adam Smith 
for casting his whole conception of life within a 
framework of general moral philosophy, and 
to end by reproaching him for applying his 
economic technology to concrete moral situations ? 
Yes; if that were what is meant by the foregoing 
criticisms, they would be both inconsistent and 
petulant. That is not what is meant. The criti- 
cism just passed is not an objection to the appli- 
cation of economic technique to decisions about 
complex questions of public policy. The objec- 
tion is to confusion of the technical economic 
factors in questions of policy with other factors; 
and especially to premature waiving of the neces- 
sary social analysis, and substitution of miscel- 
laneous generalization for analysis of the social 
factors to the limit. The question, for example, 
of the type of educational or religious establish- 
ments most conducive to the welfare of a nation 
is an altogether broader question than can prop- 
erly be discussed on the mere basis of a theory 
of public finance. Each of these questions pre- 
supposes preliminaries which involve the whole 
scope of sociological theory. The problems of 


public revenue are factors in such a theory, but 
they are only factors. They are not the compre- 
hensive theory itself. Logically, therefore, there 
is no more justification for interpolating the pas- 
sages to which objection has been taken in a 
treatise on national revenue than there would be 
for smuggling them into a treatise on military 
and naval strategy, or for an excursus on the latter 
subjects in the discussion of the main question 
of public support of the military system. We 
maintain armies and navies partly to defend 
schools and churches, just as we maintain 
national revenue systems to furnish schools and 
churches with supplies. Questions of academic 
and ecclesiastical administration, however, are 
thrust altogether out of proportion and perspec- 
tive, if they are made corollaries either of fiscal 
or of military theory. 

Chapter II of Book V returns to distinctly 
technological method. It is, however, primarily 
descriptive rather than constructive. Its subject 
is : "The Sources of the General or Public Rev- 
enue of the Society." The substance of Part I 
of the chapter may be compressed into these 
propositions : 

The revenue which must defray, not only the expences 
of defending the society and of supporting the dignity 
of the chief magistrate, but all the other necessary ex- 


pences of government, for which the constitution of the 
State has not provided any particular revenue, may be 
drawn either, first, from some fund which peculiarly be- 
longs to the sovereign or commonwealth, and which is 
independent of the revenue of the people; or, secondly, 
from the revenue of the people. 

The funds or sources of revenue which may peculiarly 
belong to the sovereign or commonwealth must consist, 
either in stock, or in land. The sovereign, like any other 
owner of stock, may derive a revenue from it, either by 
employing it himself, or by lending it. His revenue is in 
the one case profit, in the other interest." 

Public stock and public lands, therefore, the two 
sources of revenue which may peculiarly belong to the 
sovereign or comomnwealth, being both improper and in- 
sufficient funds for defraying the necessary expence of 
any great and civilized state; it remains that this expence 
must, the greater part of it, be defrayed by taxes of one 
kind or another; the people contributing a part of their 
own private revenue in order to make up a public revenue 
to the sovereign or commonwealth." 

Throughout Book V, and notably in Part II 
of Chapter II, it gradually becomes plain that the 
whole basis of discussion has shifted from the 
purely economic, and has become the economic 
plus. Is that plus merely administrative expedi- 
ency? Is the criterion of judgment which Smith 
applies merely a composite of economic and civic 
utility? Is the standard remotely and vaguely in 

" II, p. 342. 
"II, pp. 350, 351. 


view economic and civic, with a further unformu- 
lated plus which is more intimately human? 

I am inclined to think the third alternative is 
nearest the truth. It is certain that Smith does 
not pass judgment upon revenue devices solely for 
their bearing upon the production of national 
wealth. That is, the strictly and exclusively eco- 
nomic criterion with which the treatise started has 
been consciously or unconsciously retired, and a 
multiple criterion has taken its place. It is evident, 
too, that questions of administrative convenience 
are permitted now to turn the scale for or against 
possible programs. These are brought into a 
sphere of civic economy which overlies the 
sphere of productive economy, and sometimes 
vetoes maxims of conduct which productive 
economy alone would enforce.^^ There also 

" The Wealth of Nations enthalt eine Oekonomik und eine 
Politik, und es gehort zu den auffallendsten Thatsachen der 
Geistesgeschichte, dass man diesen letzteren Umstand bisher 
so gut wie ganz iibersehen oder besser ignorirt hat" (Oncken, 
Smith und Kant, p. 14). 

In the next paragraph Oncken continues : "Zwar umfasst 
die Smith'sche Staatslehre nur das letzte der fiinf Biicher, aus 
welchen das ganze Werk besteht, aber dieses Buch fiillt nahezu 
den dritten Theil des Wealth of Nations aus und enthalt eine 
ausfiihrliche Darlegung und Beurtheilung einerseits der Staats- 
zwecke in ihren einzelnen Richtungen und andererseits der 

Staatsmittel Wir haben es dabei mit einer abge- 

rundeten Staatslehre zu thun, die nach eigenen von der Volks- 


hovers on the horizon a range of relations which 
are neither definitely economic nor civic. They 
have certain imperatives of their own which 
vaguely interpose themselves in estoppal of purely 
economic or civic programs, although they do not 
come out fairly into the open and give a distinct 
account of themselves. In these latter considera- 
tions the more widely moral in Smith's concep- 

wirthschaft unterschiedenen Gesichtspunkten gegliedert ist und 
eine Hohe des Standpunktes einnimmt, wie sie in manchen 
Dingen noch kaum von der Gegenwart (1877) eingeholt wor- 
den ist, ein Umstand, der vielleicht gerade die Schuld tragt, 
dass die Theorie bisher keine grossere Beachtung gefunden 
hat." Oncken seems to me to have judged Book V more favor- 
ably than it deserves. Smith had simply not thought through 
the distinctions that separate the problems of economics from 
those of civics ; or, if he had, he did not organize his material 
accordingly. The fact that nearly one-half of the Lectures 
on Justice, etc., was virtually a preliminary sketch of The 
Wealth of Nations might perhaps have been cited by Oncken, 
if the book had appeared before he wrote, in support of his 
interpretation. It is, however, on the whole, in my judgment, 
evidence in favor of my view. 

I am not so much inclined to take issue with Oncken's 
astute suggestion that the title of Smith's work should properly 
have been : "An Inquiry into the Nature and Causes of the 
Wealth and Power of Nations." This suggestion is prompted 
by Smith's definition of political economy. Book II, Chapter V : 
"The great object of the political economy of every country 
is to increase the ' riches and power of that country." 
Granted that the inference is valid, my contention, that analy- 
sis of the problems was only in embryo in Smith's thought, 
and in the plan of the treatise, is all the stronger. 


tions is vaguely asserting itself, but the fact of 
the assertion and its implications are too indefinite 
to make a decisive impression. We have a case 
of a more particular abstraction feeling its way 
toward correlation with a more general reality. 
Meanwhile the resultant is a predominant tend- 
ency to express the reality in terms of the 
abstraction rather than the reverse. This tend- 
ency held the balance of power, and still holds it, 
but there are credible signs that the balance of 
power is rapidly passing from the party of 
abstraction to the party of reality. 

It is impossible to decide how much of Book 
V, Part II, Chapter II, is an exemplification of 
each of the tendencies above indicated. They 
are traceable in it in uncentered confusion. The 
fact is that we have in this chapter, not science 
of any sort, in the strict sense, but merely that 
more or less organized description of phenomena 
which is the necessary preliminary of science. 
The generalizations have the value of more or 
less probable hypotheses, and they foreshadow 
the differentiation of the various divisions of 
social science which shall be competent to test all 
the terms of the hypotheses. 

Part II of Chapter II treats of taxes. As was 
intimated above, it is not to be regarded as the 
outline of a theory of taxation, whether the 


author intended it for that or not. It turns out 
to be, in effect, principally a preliminary essay 
giving an account of different forms of taxation. 
The animus of the chapter may be gathered from 
the opening paragraph: 

The private revenue of individuals, .... arises ulti- 
mately from three different sources : Rent, Profit, and 
Wages. Every tax must finally be paid from some one 
or other of those three sorts of revenue, or from all of 
them indifferently. I shall endeavour to give the best 
account I can, first, of those taxes which, it is intended,^' 
should fall upon rent; secondly, of those which, it is in- 
tended, should fall upon profit; thirdly, of those which, 
it is intended, should fall upon wages; and, fourthly, of 
those which, it is intended, should fall indifferently upon 
all those three different sources of private revenue. The 
particular consideration of each of these four different 
sorts of taxes will divide the second part of the present 
chapter into four articles, three of which will require 
several other subdivisions. Many of those taxes, it will 
appear from the following review, are not finally paid 
from the fund, or source of revenue, upon which it was 
intended they should fall.^ 

In spite of the qualification just made, the 
chapter lays down four "maxims with regard to 
taxes in general." They corroborate what was 
said above about the extension of Smith's vision 
beyond the orbit of his precise analysis. Although 

^" I have italicized this phrase because it must be com- 
mented on presently. 
="11, p. 351. 


they are not supported, so far as his own work 
goes, by a critical examination of the whole 
sociology of taxation, they have exerted a last- 
ing influence upon the development of doctrines 
of taxation. They are as follows : 
V I. The subjects of every state ought [«#jtf^ to contribute 
toward the support of the government, as nearly as pos- 
sible, in proportion to their respective abilities ; that is, in 
proportion to the revenue which they respectively enjoy 
under the protection of the state. 

II. The tax which eadi individual is bound to pay 
ought [#f*J to be certain and not afbitrary. The time 
of payment, the manner of payment, the quantity to be 
paid, ought t^iH all to be clear and plain to the con- 
tributor and to every other person. 

III. Every tax ought l^sie^ to be levied at the time, or 
in the manner in which it is most likely to be convenient for 
the contributor to pay it. 

IV. Every tax ought t*fe»] to be so contrived as both 
to take out and to keep out of the pockets of the people 
as little as possible, over and above what it brings into the 
public treasury of the state." • 

Whence these "oughts"? In no strict sense 
can the word "ought" belong in the economic 
vocabulary. It is a term of moral, not of economic, 
technology. At the same time, taxation is in 

** II, pp. 351-53. Oncken (Smith und Kant, pp. 247-50) 
attempts to show that these four rules are substantially in 
Montesquieu, Esprit des his. Lib. XIII. In the same connec- 
tion (p. 246) Oncken remarks : "Diese vier Regeln sind seit- 
dem in alien Werken der Finanzwissenschaft als fundamentale 


no strict sense simply an economic process. It 
is a function of the total life of the people. 
"Ought" art, science, religion, to be taxed? If 
so, why? If not, why not? These are questions 
of the most inclusive social philosophy. It is 
impudent for economics alone to presume to 
answer them. It is highly improbable that Smith 
supposed his **oughts" got their force from his 
economics alone. He was more or less con- 
sciously and deliberately mobilizing in them his 
whole moral philosophy. He virtually asserted 
in them: "All that I know about social rela- 
tions in general combines to declare that these 
things ought to be in a righteous system of 
taxation." Here, then, is another occasion for 
reiterating one of my principal theses about the 
relation of Adam Smith to later social theory. 
He realized in the beginning, and after his epoch- 
making concentration for a time upon pure 
economic theory he came back of necessity to 
practical profession, that human conduct is a 
plexus of moral relations. The implications of 

Gesichtspunkte aufgefuhrt worden, aber sie sind in der selben 
unentwickelten Gestalt geblieben wie bei Smith selbst. Sie 
stehen ganz isolirt fur sich da und sind so auch weiter gefiihrt 
worden, merkwiirdigerweise als das Einzige was von der 
Smith'schen Finanzlehre iiberhaupt eine nachtragliche Beach- 
tung gefunden hat." Perhaps I have sufficiently hinted below 
why the last fact noted is not at all surprising. 


all these relations, not merely of an abstract 
series of them, must be found out, in order to 
establish a working theory of conduct. Economic 
theory did not at once take its cue from this 
broad conception. It overemphasized the value 
of economic theory by underestimating the value 
of the other sets of relationships in society. This 
arrested development occupied nearly a century, 
before the moral argument latent in Adam 
Smith's philosophy began to make its impression 
in the methods of the sociologists. Smith him- 
self seems to have reached the limits of his 
impulse to work out a concrete moral philosophy 
in a description of different schemes of taxation, 
"with some incidental judgments about the better 
or worse workings of the plans. It might be 
charged that Smith actually attempted something 
more constructive than this. It is quite possible 
to interpret the rest of the discussion of taxes as 
a thoroughly doctrinaire attempt to justify a 
definite program of taxation. There is plenty 
of evidence that the descriptive and historical 
form was merely a thin veil for a firm dogmatic 
substance. I prefer to give him the benefit of 
the doubt, especially as, in either case, his type 
of work was in effect merely a display of the 
need of more critical and differentiated science. 
In his standards of judgment various types of 


criteria were evidently combined. He introduces 
his sketch of taxation systems in the following 
paragraph : ^^ 

The evident justice and utility of the foregoing max- 
ims ^"^ have recommended them more or less to the atten- 
tion of all nations. All nations have endeavoured to the 
best of their judgment, to render their taxes as equal as 
they could contrive; as certain, as convenient to the con- 
tributor both in the time and in the mode of payment, and 
in proportion to the revenue which they brought to the 
prince, as little burdensome to the people. The following 
short review [sic] of some of the principal taxes which 
h^'ave taken place in different ages and countries will show, 
that the endeavours of all nations have not in this respect 
been equally successful. 

All the general criticisms which have been^ 
passed on Book V, Chapter II, apply with equal 
pertinence to Chapter III, the last in the book, 
"Of Public Debts." It is mainly a continuance 
of the subject of public revenues. It is primarily 
descriptive rather than systematic. It does not 
clearly discriminate between economic and moral 
effects. It does not stick to the subject. It 
includes a passage on debasement of the coinage. 
It returns to the subject of taxation, and even to 
the methods of exploiting the colonies. It dis- 
cusses the use of paper money, and it raises the 
Irish question. 

^11, p. 354. 

^* L e., morals on the one hand, and economics on the other. 



If logic and a deliberate methodology ruled 
the world, or even the supposedly intellectual 
part of it, Adam Smith would have been as 
immediately, if not as intensely, influential upon 
concrete moral philosophy, or sociology, as he 
was upon economics. There is a good deal of 
plausibility in the Marxian version of the reasons 
why logic did not have its perfect work in the 
social theories of the century following the 
publication of The Wealth of Nations. The 
Marxian explanation, however, falls very far 
short of the whole psychology of the events. 
The fact remains that Smith set a new standard 
of inquiry into the economic section of the condi- 
tions of life, while life presented itself to him 
as, on the whole, a moral affair, in which the 
economic process is logically a detail. The 
further fact remains that all the consistencies of 
logic enjoined analysis of the whole process 
which human experience composes, so that knowl- 
edge of all the antecedent conditions and con- 
stituent processes of life might become as positive 
as the knowledge of economic technology which 


Smith set a new pace in acquiring. The third fact 
remains that a suspensive veto, analyze it how we 
will, held that wider moral science pretty effectu- 
ally in check for a century. It was in embryo in 
Adam Smith's moral philosophy. The need of it 
was encountered in his doctrinizings abou^ social 
relations which were more than economic. 
Men's interests in these wider social relations 
were too weak effectively to divert attention from 
all that immediately pertained to wealth. This 
diagnosis applies throughout the century follow- 
ing Adam Smith. Men so focalized the wealth 
interests that all other interests became relatively 

If rhetoric which confessedly recalls the flick- 
ering fame of the late Mr. Joseph Cook may be . 
employed to express the situation, the social 
sciences were still a metaphysical Bastille which 
could be destroyed only from within. Mental 
revolt had pierced a few observation-slots through 
the inner walls of the prison, and had sapped and 
mined parts of the outer inclosure. Although 
we can now see that the structure founded on the 
Thomasian theology was crumbling, it still 
effectually immured knowledge. The series of 
assaults, beginning with Descartes, continued in 
the line of Locke and Hume in England, of 
Wolff and Kant in Germany, had widened the 


putlook breaches, to be sure, but had also par- 
tially filled them with intellectual debris. Psy- 
chology was still more speculative than positive. 
Ethics was metaphysical rather than inductive. 
Sociology, so far as it had been extemporized 
byv the struggle for liberty, was uncentered and 
individualistic, with only a faint premonition of 
the social reality. Not until physical science and 
psychology and ethics became fully self-conscious 
could they together develop force enough com- 
pletely to raze the dogmatic dungeon, and to 
found in its place a free republic of moral 

Dropping the figure, we may say literally that 
it was too much of a task for the interpreters of 
human experience to develop at once the full 
logical implications of the progressive principles 
imbedded in Adam Smith's system. The recon- 
struction on the physical side that is symbolized 
by the name of Darwin was an indispensable aid. 
Psychological analysis, taking a new start with 
Hegel's Phdnomenenologie des Geistes, had to 
establish intellectual self-confidence and to supply 
a critical technique. Not least important, per- 
haps, the little group of Benthamites, even more 
ignorantly feared and more arrogantly misrepre- 
sented as utilitarians than as economists, were 
needed to break the monopoly of the superstitions 


which were estopping real investigation of the 
origin and standards of our moral valuations. 
After the way had been prepared, and the critical 
apparatus had been invented for that program of 
ethical judgment which I have called telicism,^ 
the line of march could once more be resumed. 
The fulness of the times had come for co-ordina- 
tion of the most matter-of-fact economic tech- 
nology with a thoroughly objective sociology, 
within the horizon of a valid moral philosophy. 
We are entering a period in which judgment of 
social relations is to operate in full vision of this 
larger and truer perspective. 

It is therefore not fanciful to repeat in sub- 
stance the proposition with which this inquiry 
began, viz. : Modern sociology is virtually an 
attempt to take up the larger program of social 
analysis and interpretation which was implicit 
in Adam Smith's moral philosophy, but which 
was suppressed for a century by prevailing inter- 
est in the technique of the production of wealth. 

^ General Sociology, pp. 669-84, et passim. 



Agricultural systems of political economy, Smith's views 

of, 202 ff. 
Analysis vs. synthesis, v 

Anderson, J. P., bibliography of A. Smith, 34, 65 
Approbation, place of, in Smith's theory, 46, 50, 82 
Argument of this book, 21, 24, 66, 'JT, 155 ff., 196 ff., 238 
Arts and Science, Congress of, v, 64 


Bacon, Lord, 28 

Bagehot, W., on The Wealth of Nations, 61, 67, 68, 70 ff., 

77, loi, 103, 104, 183 
Bax, E. B., edition of The Wealth of Nations, 65 
Bellamy, E., 86 
Bentham, J., 204, 237 
Bohm-Bawerk, E. von, 141, 159 
Boisguillebert, P. L. P. de, 195 
Bonar, J., 29 
Burke, E., 26 
Butler, W. A., 27 


Cannan, E., edition of Smith's lectures, 26, 59, 204 

Cantillon, R., 195 

Cook, J., 236 

Capital, economics and sociology of, 155-80 

Capital, ways of employing; Smith's classification, 176 ff. 

Capitalism, genius of, 2 

Capitalists, Smith's suspicions of, 153, 154 



Capitalists, social justification of, 129 

Capitalization or consumption. Smith's doctrine of, 168 ff. 

Capital vs. labor, economic not social antithesis at Smith's 
time, 100, 128 

Classical economics, 4, 10, 16, 23, 24, 67 ff., 147 ; assumption 
of paramount worth of wealth, 148, 199; defection of, 
from Smith's moral standards, 139, 148; statical 
presumptions of, 138, 200 ff. ; vs. democracy, 145 ff,, 
215; vs. socialism, 131, 143 ff.; vs. social philosophy, 

Communist manifesto, no 

Congress of arts and science, v 

Consumption vs. capitalization. Smith's doctrine of, 168 ff. 

Consumption vs. production, 3, 79 

Cossa, L., 28, 64 

Customary price vs. "natural" price, 122 ff. 

Customary vs. natural rights, 123 ff. 


Darwin, C, 57, 237 

Debts, public, Smith's views on, 233 

Democracy vs. classical economics, 145 ff, ; vs. privilege, 

principle at issue between, 123 ff, ; vs. property, 153 
Descartes, 28, 40, 236 
Distribution, social problem of, 166 
Dividends, Smith's denial that they are reward of labor, 

118, 150 
Division of labor, effects of, 85 ff. 
Dyer, L., 64 


Economic history, methodological relations of, 17-19 
Economics, literature of, 64 

INDEX 241 

Economics and sociology, vi, vii, 3, 8, 10, 14, 23, 64, 65, 'j'j, 
144 f., 146, 156, 196 ff., 209 ff., 218 ff., 223, 232, 235 ff. 

Economic theory, necessary reconstruction of, 179, 180 

Economic vs. sociological interpretation of history, 181-87 

Economists, early; humane purpose of, vi 

Economists, have they regarded themselves as compe- 
tent guides of conduct, 72 

Entail, historic reasons for, 185 

Epictetus, 39 

Equality of endowments. Smith's theory of, 93 

Finance, national, methodological relations of, 20 
Finance, Smith's doctrines of, 28 
Fisher, I., 160 

George, H., 143 

German vs. English economics, 10 
Germany, policy of, with respect to "unearned increment, 

Gournay, J. C. V. de, 195 
Grotius, H., 28 


Haldane, R. B., 34, 53, 65 

Hamilton's edition of D. Stewart's works, 25 

Hartley, D., 27 

Hasbach, W., 5, 27, 28, 29 

Hegel, G. W. F., 113, 237 

Hirst, F. W., Life of A. Smith, 26, 35, 39, 61, 62 

Hobbs, T., 28, 104 

Hume, D., 27, 28, 34, zj, 236 

Hutcheson, F., 2^^ 28 



Impartial observer, Smith's theory of, 39, 63 
Inequality, Smith's theory of social responsibility for, 93 
Ingram, J. K., 47, 64 
Interest, Smith's justification for, 176 


James, E. J., 64 

Justi, J. H. G. von, 28 

Justice, means of defraying costs, 212 ff. 

Justice, Smith's theory of, 54, 55, 59 

Kant, I., 29, 211, 236 
Kidd, B, 86 

Labor as norm of value, Smith's views of, 104 ff., 127, 140, 

149 ff., 203 
Labor as title to income. Smith's views, 174 ff. 
Labor, economics and sociology of, 79-154, 203 
Labor vs. capital, economic not social antithesis at Smith's 

time, 100, 128 
Laborers, Smith's vi'ews about their defective attention to 

their own interests, 150, 153, 154 
Laissez-faire doctrine, fallacy of, 186 ff. ; meaning of, 

154, 186, 187, 191 ff. ; Smith's relation to, 215 
Landlords, social justification of, 129, 150 
Le Play, 76 
Leslie, T. E. C, 11, 181 
Li Hung Chang, 94 
Locke, J., 236 

Mallock, W. H., 86 
Malthus, T. R., vii, 18, 134 

INDEX 243 

Manchester School, 32 

Marginal theory, 102 

Market vs. natural price, Smith's theory of, 121 flF. 

Marx, K., 98, 99, 100, 107, iia-13, 116, 126, 128, 130, 131, 

132, 137, 146, 235 
McCullock, J. R, 198 

Mercantilists, Smith's views of, 189 ff., 201 ff. 
Mill, J. S., vii, Ti, 12, 21, 55, 56, 69, ^2, 98, 139, 17I' 182 
Millar, J,, 32 
Miller, A. C, 64 

Money, Smith's theory of, 95 ff., 193 ff. 
Montesquieu, C, 28, ZZ, 230 

Moral judgments, Smith's theory of sources, 46 
Moral philosophy, non-social in eighteenth century, 48 
Moral philosophy, relation to the social sciences, viii, 3, 

4, 8, II, 15, 20, 22 
Morals, problem of, 56 
Mun, T., 192 

Natural vs. customary rights, 123 ff. 
Natural vs. market price, Smith's theory of, 121 ff. 
Neurath, W., 62 


Oncken, A., 5, 29, 60, 226, 230 


Parsimony, Smith's theory of, 172 ff. 

Persons, the central concept in social science, 4 

Physiocrats, Smith's relation to, 14, 28, 195 

Plato, 206 

Political economy. Smith's dictum of object, 227 

Price, Smith's theory of, 97 ff., 116 ff. 


Privilege vs. democracy, principle at issue between, 123 ff. 
Problems of economics and sociology, 189-208 
Process, social, 156 
Production vs. consumption, 3, 79 

Profits, antithetic assumptions of capitalism and social- 
ism, 113 ff-; need of conclusive theory of, 114; Smith's 
theory of, 134 ff., i57^-l vagueness of the concept in 
Smith's theory, iii 
Propensity to barter, Smith's theory of, 90 
Property rights, failure of economists to analyze, 132 
Property, sociological view of, 137; vs. democracy, 153 
Propriety, meaning of, in Smith's theory, 38 
Psychology, speculative character of, at Smith's time, 237 
Public works, means of sustaining, 214 ff. 
Pufendorf, S. von, 28 


Quesnay, F., 195 

Rae, J., Life of Adam Smith, 26 
Raphael, school of Athens, 157 
Rectitude, synonymous with "propriety" in Smith's theory, 

Religious institutions, means of supporting, 219 
Rent, Smith's theory of, 116 ff., 142 ff. ; social problem of, 

144 ff. 
Revenue, public, sources of, 224 ff. 
Ricardo, D., vii, 72, 131, 142, 143 
Roscher, W., 28 
Ruskin, J., on economists, 61 ff. 

Schiller, J. C. F. von, 63 
Senior, N. W., 172 


INDEX 245 

Service, the social basis for rights, 132 

Shaftesbury, A. A. Cooper, third earl of, 2"] 

Simmel, G., 103 

Skarzynski, W., 60 

Small, A. W., General Sociology, 238 

Smith, A., vi, vii, viii, ix, 2, 4, 5, 6, 10, 77, 81, 155 ; analysis 
of his philosophy, 9, 32 ff,, 65, 66; as object-lesson in 
sociological methodology, 65 ; Bagehot's criticism of, 
67 ff. ; biographies of, 25 ff. ; concept "natural," 14 ; 
dictum that coi'porations cannot become economically 
efficient, 217; foolish prophecy about America, 178, 
179; Ingram's estimate of, 47; labor theory of, 6, 203; 
jec tures on jurispruden ce^ 59, 84, 204 ff., 227 ; loose- 
ness of his argument in latter portion of The Wealth 
of Nations, 208 ff., 216 ff., 218 ff., 222, 225, 233 ; main 
question in The Wealth of Nations, 8; methodology 
of, 20, 28, 29, 181 ff. ; moral philosophy of, s^ ff-, 40 ff., 
45, 48, 52 ff., 57-5$v6i ff., 81, 148, 197, 230 ff.; relation 
to individualism,gi) relation to laissez-faire doctrine, 
Q4^/2iSi relation to^netaphysics, 34; relation to 
modern economists, if i79~^iT. ; relation to psychology, 
48, 51; relation to socialism, 7, 65, 98 ff., 108 ff.; rela- 
tion to sociology, 167, 230 ff. ; relation to utilitarians, 
34, 51, 204 ff.; sources of information about, 25-77; 
static preconceptions of, 56, 107 ff., 125 ff., 148, 149, 160; 
theory of capital, 15; theory of consumption, 6; theory 
of ethics, Lis ff. ; theory of justice, 54, 55; theory of 
moral sentiments, 26, ;is, 35, 40 ff., 46, 49, 59, 60, 70, 71 ; 
theory of taxation, 228 ff.; views of object of political 
economy, 227 

Socialism, a reaction from eighteenth-century political 
philosophy, 207; not pre-eminently social, 126; vs. 
classical economics, 131, 143 ff. 


Socialists of the chair, Oncken's confusing of Smith with, 

Social variants of economic forces, 135 ff., 184 ff., 191 ff. 
Sociological vs. economic interpretation of historj^ 181-87 
Sociologists, true successors of Adam Smith, 4 
Sociology and economics, vi, vii, 3, 8, 10, 14, 23, 64, 65, ^T, 

144 fif., 146, 156, 196 ff., 209 ff., 218 ff., 223, 232, 235 ff. 
Sociology, vagueness of, at Smith's time, 22)^ 
Sombart, W., i, 92 
Sovereign, means of supporting, 221 
Sovereign, Smith's use of the concept, 209 ff. 
Sovereignty, Smith's use of the concept, 204 ff. 
Spencer, H., 57, ^, 152, 212, 215 
Stein, H. F. K., 28 
Stewart, J., 29 

Sympathy, place of, in Smith's theory, 38 ff., 46-48 
Synthesis vs. analysis, v 


Tarde, G., 86 

Taxes, Smith's doctrines of, 228 ff. 

Telicism, 238 

Thomas, W. I., 86 

Thomasius, 236 

Turgot, A. R. J., 26 


Umpfenbach, K., 28 

Utilitarianism, Smith's affinity with, 204 ff. 


Value, theory of, 55, 56, 96 ff. 
Von Mohl, R., 189, 210 

INDEX 247 


Wage-fund theory, 133 

Wagner, A., 28, 31 

Walker, R, 218 

War, methods of defraying costs, 210 ff. 

Wealth, a fragmentary concept, 156, 199 

Wealth as a social factor. Smith's views of, 104 

Wealth of Nations, viii; an inquiry in sociology, i, 3, 4, 
8, II ff., 59, 60, 63, 66, 77; epitome of, 84 ff.; primarily 
a technological treatise, 66, 79, 84, 90, 95, 120, 135, 

Webb, S., 86 

Wolff, C, 28, 236 


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